Coronavirus concerns hit housing prediction as the market holds strong in February

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Economists from Westpac have predicted that effects of the coronavirus on the economy could carry into the housing market. Strong buyer demand reveals buoyant property market in February.

Here’s what you need to know:

Reserve Bank Cuts Official Cash Rate to 0.25 In Response to COVID-19

Due to the incredible impact the economy has faced under the effects of the coronavirus, or Covid-19, the Reserve Bank announced on Monday that it would cut the official cash rate to 0.25 per cent for 12 months.

"The negative economic implications of the Covid-19 virus continue to rise warranting further monetary stimulus," the Reserve Bank said in a statement.

The cut was bigger than some economists had predicted, ASB chief economist Nick Tuffley had picked a 50 basis point cut, which would have taken the rate to 0.5 per cent. But most agreed that it would be unwise for banks not to pass the full reduction to customers.

Westpac and BNZ have already indicated they will pass on the full 75 basis point cut and ANZ said it would pass the full cut on in variable rates.

Westpac Slashes Hose Price Growth Predictions Amid Coronavirus Concerns

It seems that the global and national effects of the coronavirus may affect the country’s housing market, with Westpac New Zealand's chief economist is expecting the housing market to skid to a halt.

Westpac chief economist Dominick Stephens has predicted that the main impact of the virus will be felt in the second quarter of the year, stating in a report on the economic impact of the disease, "The currently rampant housing market is likely to skid to a halt, with price growth slowing sharply in the June quarter."

Stephens indicated that the market will be impacted from the flow-on effects that the virus will have on jobs and consumer spending. Westpac is now forecasting a 28% drop in visitor arrivals to NZ and has reduced its March quarter Gross Domestic Product (GDP) forecast to -0.2% and its forecast annual GDP growth to 1.9%. But Stephens is confident that the effects will only be temporary and expects the economy to recover strongly afterward.

"We anticipate a period of above normal GDP growth after the worst of the virus-related disruptions have passed, as the economy returns to a normal level of economic activity, catch-up production to restore depleted inventories occurs, and even lower interest rates stimulate asset prices."

Property Market Remains Buoyant In February

Economists say a strong buyer demand is likely to fire up Auckland’s housing market. ASB economists said the sales-to-listings ratio in Auckland was rising since May last year, and overall real estate listings in Auckland were approaching the all-time low of 2015 and 2016. The sales were chewing up the inventory in the market.

According to the Real Estate Institute of New Zealand, 6694 homes were sold in February, up 9.2% compared to February last year and the highest number of sales in the month of February since 2016.

February witnessed a surge in sales in the Auckland market, where up 1968 homes were sold, up 41.6% compared to February last year and the highest since 2015. Auckland also set a new high in median selling price at $888,000 for the month of February, the highest it has been in three months, but also relatively flat compared to other regions.

For the rest of the country excluding Auckland, February sales were up a marginal 0.3% overall compared to February last year, with the national median selling price hitting a new record of $640,000, with most of the price growth occurring outside of Auckland.

-Ravi Mehta