Historically, an elevated unemployment rate is anathema to housing market strength. House prices can be challenging to predict at the best of times but there are a lot of big pieces moving at the moment so forecasts are particularly uncertain:
- net migration is likely to be much lower due to fewer job opportunities but Kiwis abroad may come home in unexpected numbers;
- unemployment is definitely moving higher but how much and for how long is unknown;
- mortgage rates have hit record lows and loan-to-value ratio restrictions have been removed but banks will be prudent with their lending in a riskier environment;
- the loss of international tourism will see some Airbnb accommodation made available for long-term rentals.
How all these things will balance out is unclear but the basic fact is when the unemployment rate goes up some people are put in a position where they have to sell at any price and that tends to result in sharper downward movement in prices than seen in a cool-down caused by more expensive or more constrained lending.
ANZ Research are forecasting New Zealand house prices to drop 10-15 per cent – though to put that in context, they are up nearly 9 per cent in the past year. And the mood has definitely changed.
Although households struggle to put the ‘right’ number on it (basically underestimating how much house prices swing around) they know what’s going on. For the first time since ANZ Research’s New Zealand consumer confidence survey began in 2010, consumers are expecting house prices to fall – ostensibly by just 0.2 per cent.
When adjusted for the predictable scale error, it’s consistent with ANZ Research’s forecast of a double-digit fall.