Buy? Sell? Snap up a bargain? Wait and see? How the coronavirus pandemic could change the housing market

Leading real estate company Barfoot & Thompson recently released a report analysing and forecasting how the COVID-19 pandemic will affect New Zealand’s property market. Drawing on the views of 53 real estate agents and mortgage brokers, the report assesses the current residential market and the differing attitudes and plans of buyers, sellers and investors.

Although online sales remain possible, most sellers and buyers are taking a wait-and-see approach at this stage. Buyers expect property prices to fall, but many have had to leave the market because of losses in their KiwiSaver investments, unemployment or reduced income. Sellers are also withdrawing unless financial pressure forces them to sell.

Small investors are deeply concerned about lost rental income. Larger investors share these concerns, although they may be somewhat better placed. Some well-funded investors who have been lying low and watching the market have begun contacting real estate agents, hoping to seize opportunities to buy cheaply over the coming months. Some banks, though not all, have stopped accepting new mortgage applications. It is unclear whether this reflects an unwillingness to keep lending or is simply a temporary response to staff shortages. Construction companies are concerned about the market outlook.

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The impact varies across buyer groups

Overall, buyers who need a home to live in currently share the following tendencies:

• Putting their purchase plans on hold while they wait to see what happens.
• Expecting properties to sell at lower prices. In reality, however, asking prices have barely fallen because listings have been scarce recently and many sellers have withdrawn.
• Being reluctant to buy online because some services are unavailable during lockdown.
• Hoping to list and sell their existing homes as soon as possible after restrictions are lifted, freeing up funds to buy another home.

However, differing needs, financial circumstances and exposure to the pandemic’s effects are dividing buyers into distinct groups.

• Forced out of the market

Most first-home buyers have abandoned their purchase plans after seeing losses in their KiwiSaver funds. Among potential buyers, the self-employed are in a worse financial position than salaried workers because of sharply reduced current income and deep concerns about declining customer numbers. They have become another major group withdrawing from the market. Some buyers have had to abandon unconditional purchase agreements after losing their jobs, while even those who obtained pre-approved finance before the pandemic are beginning to hesitate.

• Hoping for quality at a good price

People whose jobs are relatively unaffected by the economic downturn, particularly public servants, remain interested in buying and hope to find better properties at more suitable prices. Indeed, many eager buyers have been unable to find their ideal property for over a year and hope to see more listings. Some potential buyers believe the election, as well as the pandemic, will influence the housing market, and say they will continue to wait and see until the September election.

• Unwilling to rush a decision

Buyers who remain well funded in these exceptional circumstances are undoubtedly fortunate. With the advantage firmly on their side, they are in no hurry to make a purchase decision at this stage.

• Seeking to complete a purchase quickly

Unlike most buyers or potential buyers, who remain cautious, some see an opportunity in others’ hesitation and want to use the relative downtime during lockdown to complete a purchase.

• In a hurry to sell

Buyers who were preparing to upgrade their homes just before the pandemic began now face an awkward situation. Those who have already signed purchase agreements hope to list their existing properties as soon as lockdown ends and sell quickly. They worry that failing to complete a sale in time could put their deposits at risk, and are unsure whether they will need bridging finance.

Delayed listings create a shortage of properties

Sellers know that many potential buyers are reluctant to purchase properties listed solely online during lockdown because they cannot access local councils or building inspectors. Unless under financial pressure, some sellers are therefore postponing their listings until the market stabilises after lockdown. Owners of quality properties who are in no hurry to move are particularly keen to wait as long as possible for broader social and economic conditions to improve, hoping to secure their desired sale price. Many consented housing projects may also be delayed or cancelled because of the pandemic. Together, these factors have reduced the number of properties on the market, with quality listings in particularly short supply.

It is worth mentioning that almost all the properties currently seeing the largest price reductions belong to construction companies. Having borrowed to build homes for sale at a profit, they now need or want to sell those homes as quickly as possible.

Small investors may be forced to sell

Beyond buyers’ and sellers’ attitudes and the establishment of online sales systems, the residential market faces a more serious question: will investors remain buyers, or be forced to become sellers?

• Small investors face a crisis

Many investors are struggling because tenants cannot or will not pay rent. There is growing concern that, alongside difficulties attracting new tenants quickly and ongoing cash outflows, a lack of incoming cash will cause severe short-term hardship for many investors relying on property to fund their retirement. Once lockdown ends, a large number of properties may be listed as forced sales for reasons other than the usual high debt-servicing costs. Some small investors who depend on rental income have already swiftly withdrawn their plans to buy another home. Unless policy changes are made, this could be the final straw for small investors.

• Long-term investors see opportunities

Well-capitalised professional investors taking a long-term approach are in the opposite position to small investors. Fewer competitors and more properties requiring urgent sale appear to be a welcome prospect for them. After all, demand for rental housing will always exist over the long term, and there is reason to believe it will continue to rise after short-term fluctuations.