(Bloomberg) -- New Zealand’s housing market is defying predictions of a slump, for now at least, as thousands of citizens living abroad flock home to the Covid-free nation.
Home values gained 7.4% in June from a year earlier, only slightly down on the 7.7% annual growth rate in May, government-owned property research company Quotable Value said on Wednesday. Prices rose 1.3% over the past three months, taking the average to NZ$738,018 ($484,000).
New Zealand’s success in eliminating community transmission of the coronavirus allowed it to exit a nationwide lockdown early and resume normal life. That’s attracted many kiwis living overseas back to their homeland, fanning demand in the property market even as an economic slump drives up unemployment and dents consumer confidence.
“A combination of pent up demand following lockdown, plus vast numbers of returning expats over the past few months has contributed to strong attendance at open homes, auctions and tenders in most locations throughout New Zealand,” said QV General Manager David Nagel. “Record-low interest rates have also helped to ensure prices have held up well so far.”
To cushion the economic impact of the pandemic, the central bank has slashed interest rates to unprecedented lows and lifted restrictions on low-deposit mortgage lending.
The government has said more than 26,000 people have been through the mandatory two weeks of managed isolation at the border since the end of March. The vast majority are returning citizens or residents as the border remains closed to foreigners.
To cushion the economic impact of the pandemic, the central bank has slashed interest rates to unprecedented lows and lifted restrictions on low-deposit mortgage lending. Still, with the economy in recession and unemployment rising, the property market is unlikely to remain so buoyant.
In largest city Auckland, home to a third of New Zealand’s five million people, house prices climbed 5.4% in the year and 1.5% in the quarter, lifting the average to NZ$1.08 million. Capital city Wellington saw gains of 10.4% from June last year.
But in the South Island resort of Queenstown, which relies heavily on international tourism, the closed border is already taking a toll. House prices dropped 1.5% over the past three months, today’s report showed.
Nagel said while the resilience of the economy and housing market has surprised many commentators, the end of support measures such as wage subsidies and mortgage holidays is likely to exert downward pressure on prices in coming months.
“Our earlier projections that the market will experience a correction of 5-10% by Christmas time from the pre-Covid high of January to March 2020 is still looking likely,” he said. “The worst is still ahead of us.”
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