When Will House Prices Bottom Out? | Impression Real Estate
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When Will House Prices Bottom Out?

Posted by Impression on 18, May 2020

The latest budget was another cash injection for our economy, which will massively ramp up Government debt levels in order to help reduce financial suffering from New Zealanders as a result of Covid-19.

Although unemployment here is forecast to reach almost 10%, it’s predicted to drop quickly – and it pales into insignificance compared to the 25% expected peak unemployment rate in the US. 

This recession is unusual in that it has been caused not by problems in the financial systems or international relations, but by a pandemic. There are no specific underlying economic causes, so it’s possible, even likely, that we’ll recover much more quickly from this downturn than previous ones like the GFC.

What does the latest budget and the likely rapid recovery mean for the property market? Obviously when people have less money to spend and our economy is struggling with recession, house prices drop. However, there are other factors which – in the longer term – are pushing in the other direction.

With billions in funding for infrastructure projects, New Zealand should theoretically start to run more smoothly. Add to that the $60 billion in quantitative easing, which has long had a history of pushing up asset prices. Then in addition you have people flocking back to New Zealand, rather than leaving. Interest rates are incredibly low and loan-to-value ratio (LVR) restrictions have been removed. Finally, the massive boost to our international reputation caused by our excellent coronavirus response. All these factors will be propping up property prices.

How far will prices drop and how quickly will they start rising again? Nobody knows. That’s why trying to time the market is impossible. If you want to buy property, don’t try to wait for the bottom of the market; just do your numbers and buy when you’re ready.

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