Amid the deepening COVID-19 crisis, ASB's team of economists have revised their prediction for the housing market. They previously predicted house price inflation to soar to 8.6% in June.
The coronavirus crisis has taken the heat out of the property market, the economists said. Despite record low interest rates, and an OCR cut to 0.25%, the economy is "headed for recession", senior economist Mike Jones added.
Jones said: "The economic fallout from the coronavirus outbreak will have implications for NZ’s property market. Both demand and supply are likely to take a knock. Demand is likely to tail off first and listings to follow as sellers pull back and await better conditions. The March quarter looks to have been a belter for house price inflation, but we now forecast small outright declines in house prices for the June and September quarters."
Jones believes low interest rates will have a "cushioning effect" on the market, as well as the "starting point of strong excess demand". "But risks are nevertheless to the downside," Jones added.
House prices fell by about 10% through the GFC in 2008, and commentators are concerned the housing market is in line for another correction this year, as people tighten their belts and hold off on home purchases.
There was some bright news for home owners in the report. If the outbreak is brought under control and activity recovers, ASB says price inflation could turn higher "from around Q4".
"However, given we’re in the eye of the storm, longer-term forecasts should be taken with a grain of salt," Jones added.
Independent economist Tony Alexander agreed with ASB's forecast.
"The market will go on hold then move up again once the pandemic flight is over," he told TMM Online.