Written by Vicky Holder
What have we learned from the Covid-19 experience? Don’t always believe what you read – the experts don’t always get things right with their predictions.
Bank economists said there would be dire consequences for the property market when the Covid-19 Level 4 Lockdown hit in March this year. The ANZ, Kiwibank and Westpac all weighed in, predicting house prices would fall by between 8% and 15%.
But they got it wrong – big time. Carey Smith, Ray White’s CEO says, prices haven’t dropped. In fact, in May, sales returned to 68% of where they were pre-Covid and, if anything, prices have increased, he says. And by June, residential property listings were 31% ahead of the same time last year, which picked up almost all of the slack in property not listed in April.
According to the REINZ, the annual lift in sales numbers for the whole of New Zealand was 9.3% for the past 12 months. And in the last quarter, it was 3%, which is very contrary to what the economists predicted.
New Zealand’s real estate market has well and truly bounced up again. Smith puts this down partly to confidence in the way New Zealand handled the pandemic. “It was done so well,” he says, “It seems many New Zealanders feel somewhat protected from the outside world that is still struggling to contain the virus.”
Many organisations used the Covid experience to restructure their business, and it’s further been revealed that less than 10% of businesses have taken up the second tier wage subsidy, which indicates that 90% of businesses are trading over at 60% of where they were this time last year. That’s got to be good news.
However, the other major reason for the surge in sales can be attributed to the lowest interest rates on record, says Smith. “They have given buyers an opportunity they’ve never seen before and may never see again. This brings home affordability into range for many people. Buyers are asking, should we buy now? And the answer is resoundingly, yes!”
Then there’s the fact that there’s more choice for buyers, with many sellers coming onto the market.
So what led economists to veer so far off course?
Looking back, Smith puts it down to the real estate industry’s lack of visibility during the Lockdown. They were left without a voice, which came about due to a total inability to prepare for what was ahead. Ignored by the media, economists filled the vacuum with projections based on assumptions.
“We knew something was coming, but no-one really knew the depth of what it was. Pre-Lockdown, we were already holding virtual meetings. But when the Government announced on the Monday that we would be going into Lockdown on the Thursday, there wasn’t really any ability to prepare your business. From there on, the first week was consumed by safety issues,” says Smith.
“New sellers and buyers dissipated rapidly. Auctions continued for around 10 to 14 days, and they had a lot of success. Ray White’s March results were one of the best in our history. We did a personal best. There was always going to be some legacy of activity after that period, but it was short-lived, and there was no immediate effect on property prices.”
One of the big things that happened early on was the demise of Bauer Media, publisher of Property Press, which used to play a significant role in real estate marketing. That meant all marketing had to go digital. However, there were hardly any listings to promote. Real estate came to a virtual standstill, as agents couldn’t face to face with buyers and sellers. There were no open homes, no property inspections, no signage, no brochure drops. Even if someone sold a property, nobody knew about it.
“Momentum is created by people seeing the market. There was no longer any opportunity for people to see the market in action. Like a lot of industries, our business was paralysed,” laments, Smith.
During Level 4, sales were down 91%, and Ray White only made 9% of what they did in April 2019. It picked up when the country moved to Level 3, but concern for personal safety meant the private inspection environment continued another few weeks through to Level 2. Rules discouraged people from visiting multiple properties and there was a significant amount of nervousness on the part of sellers who didn’t want a lot of buyers through their home – particularly unqualified buyers.
On the upside, digital enquiry went up dramatically, says Smith. And there was time for people to dig deeper in their property searches. The ability to physically inspect a property didn’t happen until late in April, when New Zealand moved to Level 3 and agents could do two inspections on one property a day within a bubble.
However, you couldn’t bring other people outside a bubble to the property. Normally with a popular property you’d have about 20 to 50 attendees come to an open home.
“While that was limiting, it created a backlog of buyers. Prices weren’t affected because people couldn’t see the balance of the market and they were keen to make offers and make their own decisions.”
With business confidence levels at just 1% below what they were a year ago, people are feeling a lot more positive than economic forecasters expected – and those same economists have since readjusted their predictions upwards.
Smith says that around 6,000 to 7,000 properties are selling each month, and buyers are certainly out there looking.
“Auctions are more popular than ever, with 56% more in June than there were in the previous June. Investors are also busy, along with first-home buyers… and even developers are indicating they’re confident about the future with plans to keep forging ahead. Ray White simply can’t get enough properties to list."
So what have we learned?
“It has brought home to Ray White the importance of being able to produce real-time data to be able to inform, rather than influence buyers and sellers with facts that help in their decision-making process,” says Smith. “We are very keen to understand data, week by week and month by month, in real time. And the company has invested in a number of dashboards that have changed the way we look at our business. We now produce a document that takes daily data from our network, which gives people insights on a weekly basis.”
On any day of the week, anybody in Ray White can now tune in to these dashboards for a snapshot of property related activity that has been made that day, week or month. It tracks every pre-sale indicator, right through to the sale, and gives a clear picture of what’s happening every day.
This data shows listings are up 24%. Online enquiry is also up. Auction bidders are way up too, and loan approvals have sky rocketed.
Ray White’s own mortgage advisor, Loan Market (which does 65% of all their client’s bank lending), feeds in information on who is pre-approved to purchase, and it shows pre-loan approvals up 40% up on this time last year. Over 1,000 potential buyers are running around with cash (or virtual cash) in their pockets looking to buy. Property appraisals are up 27%, too.
Buyers and sellers are feeling positive, and real estate is looking healthy.
As Carey Smith says, the market will never be impervious to a crisis. But if you’re looking for a crystal ball to predict the future of property, don’t believe everything a bank economist tells you.