InvestNow News – 20th Mar – Harbour – How vulnerable is our housing market?
18th March 2020 – Mark Brown
Key Points
- Housing affordability continues to be a major challenge for many households. Initiatives to increase supply and to manage risks to the financial system have helped to contain house price rises, but they have not been able to hold the market back from strong price gains across the country. Our analysis had suggested that house prices could keep rising in the near term, supported by falling mortgage rates and a buoyant economy. However, risks of price declines are growing. The coronavirus outbreak has elevated the risks.
- The drivers of strong price gains over recent years have been positive migration, falling mortgage rates and strength in the jobs market. We see limited scope for these factors to add to housing market strength over the medium term. Coronavirus could be a catalyst for weaker prices if the economic impact is significant and unemployment increases.
- Prior to COVID-19 we had considered whether a housing market bubble might exist. We judged that this was not the case, although some traditional features of bubbles are apparent.
- Recently announced policy responses from the Reserve Bank of New Zealand and our Government are meaningful and we expect them to mitigate risks to a considerable degree. The key issues for housing will be the jobs market and whether any mortgage payment flexibility is forthcoming.