Has Covid-19 been a friend or foe to the housing market?
Many of us are wondering what the long term effects on the housing market will be?
Those of us in Real Estate are no different, and anybody who says that they know for certain based on other historical events is not being totally truthful.
Supply and demand is what drives the housing market.
At the moment in New Zealand, there are large numbers of returning residents, some buying “sight unseen” in their quest to get settled again.
They are competing against other “pre-covid” existing buyers and driving the supply down and the prices up.
Then you have the low mortgage interest rates and the Banks driving away their savers with extremely low interest rates.
Retirement savers leaving Term Deposits for better returns
Those people who have saved for their retirement and paid their taxes all the way through, have been able to subsidise their living expenses with interest earned in years gone by.
That is impossible now, so many TD investors will also be competing against other buyers to get back into holding rental properties again in order to survive financially moving forward.
An expensive exercise moving forward
It is not easy being a landlord in today’s world with all the changes in the residential tenancy act and rules around healthy living standards sometimes proving to be an expensive exercise.
But, it still seems that many people are going back into property rentals as well as the share markets, despite the risks, as the Banks sit tight, and continue to make huge profits.
What if Governments did something slightly different?
Perhaps they could offer bonds to savers at reasonable interest rates ?
That way, there would be more houses made available to first home buyers, as downsizers and Boomer Landlords sold up and invested their savings for fairer returns.
At the moment you even have “downsizers and upsizers” sitting tight as they cannot find anywhere to live, or to invest their funds, so it is a vicious cycle.
Something will need to be done soon. It is clear that enough houses cannot be built as often promised by Governments in election mode.
Whilst international tourism is on hold, it has also been noted that there has been evidence of increased spending on luxury items like cars and caravans, while those that can afford it, holiday in their home countries now instead of spending billions in overseas travel.
At the start of Covid-19 there were dire predictions of a property collapse, but the RBNZ latest survey of expectations is now forecasting house prices index to fall by 1.38 percent by this time next year (a lot lower than its previous prediction of a 5.49 percent decrease.)
In Australia it has been reported that house prices in Sydney fell 2.6 per cent, and in Melbourne they dropped 2.8 percent. It was noted that while prices had fallen in Sydney and Melbourne, the cumulative fall in the national market had been less severe than the market’s correction in 2018.
The rental market, however, is thought to be facing tougher headwinds with Rental vacancy rates rising and notably, downward pressure on rents unlikely to dissipate in the near term in either Sydney or Melbourne.
” Research data “recently released found the vacancy rate in Melbourne increased to 3.4 per cent in August, up from 3.1 per cent the month before, with an extra 2,145 homes sitting empty during stage four lockdowns in the city.
The Melbourne CBD is now at a record high vacancy rate with one in 10 homes empty, up from 8.8 per cent in July.
Sydney’s vacancy rate remains the highest at 3.5 percent, down 0.1 per cent from July. Sydney CBD has 12.9 percent of homes vacant compared to a high of 16.2 per cent in May.
Forecasting the housing market is not an exact science at the best of times, and these are certainly not the best of times, with much uncertainty around migration, unemployment, and the impact of unprecedentedly low mortgage rates as the world tries to recover.
So all we can do for now, is to stay calm and not panic.
Tomorrow is never promised to any of us, so why worry about the things that you have no control over, rather do the things that you can control, like respecting others, and doing what is right to stop spreading Covid-19 until a vaccine is found.