A Market No One Predicted
04 Dec 2020, Lynette McFadden
Here we are in December and I’m counting down the weeks to the end of the year. I’m more excited than usual about the prospect, but although I’m eternally weary, I’m also eternally grateful.
Very soon this year will be behind us, but it looks like the market that’s been generated as a consequence will continue. Here are some of the reasons for this, as described by Tony Alexander, well-known New Zealand economist, at a presentation he recently gave to our company.
As I’m neither an economist nor an analyst I’d like to jot down his facts, and some of the stats, and leave you to make up your own mind as to what the future could look like.
Firstly, no one could have predicted the times we currently find ourselves in.
1) It was initially thought that post- COVID-19, prices would fall by at least 7%. In fact, they fell by a mere 3% and have since risen in excess of 10%. That’s the first big anomaly and it caught me and others, including many economists and experts, by surprise.
2) Whilst $17 billion usually filters into our domestic economy each year courtesy of tourism – and that’s not a happening thing this year – the $10 billion that Kiwis usually spend overseas is being spent inside our own borders instead. It’s going towards property and more property, investment property and land. It’s also behind the increased purchase of (wait for it) spa pools, Harley Davidsons, electronic equipment, bigger TVs, swimming pools, jewellery and art. In addition to $10 billion needing to find a home, coupled with extraordinarily low interest rates, first-home buyers are also looking to buy property, given the next five years have a level of uncertainty to them.
Here’s another Alexander fact: first-home buyers were very quick to act post-COVID-19. Usually comprising 20% of the market, that figure is now 24%. It seems many had saved more whilst in lockdown, reducing their usual entertainment and hospitality spending. Not buying a cappuccino a day – or maybe two – does add up when you look at a period of six weeks. Deposits start with this kind of action ... and they did.
With the likelihood of no or nominal interest rate rises and the belief that our LVR restrictions provide a safety net for banks and consumers, I’m hoping our local Canterbury economy will grow. Our affordability as a region makes us a standout across NZ and construction in many parts of the city is surging.
I’m not an economist, I know, but at this point I’m an old hand who is holding on tight to a market that looks like it could teach us all something new!