It has been two weeks since I last sat down to write an update on the market. At that time we were pre-lockdown, with just 8 cases of Corona Virus confirmed in New Zealand. Today, day 14 of Lockdown, the number of cases has increased to over one thousand, and still slowly rising.
To learn more about a crisis, you can read and listen to what the experts say, and you can look back and compare this crisis with past crises, whether they be economic based or natural disasters.
The 2008 Global Financial Crisis (GFC) has been called the worst economic disaster since the Great Depression. Some experts are even saying that the economic fall-out from Covid-19 will be higher. However, the GFC was a man-made crisis; it happened over time; we anticipated it coming. A financial crisis that takes place over years takes a long time to recover from.
At the almost opposite end of the scale, the Christchurch Earthquakes of 2010 and 2011 were sudden, like someone had come along and turned off the lights. Following a natural disaster, you will generally see the market getting busy again after 6 months.
Covid-19 isn’t man made, but we did anticipate it a few weeks in advance. So it’s different - but the same - to both of the above examples.
Today, after being in the business for a decade and a half, and intently studying these prior disasters, along with listening and speaking to experts over the past 3 – 4 weeks, I want to take a moment to share with you some of my current thoughts.
The New Zealand Government recognised early that there would be an immediate economic impact on businesses from Covid-19. Hence a $12.1 billion response package was rapidly put in place. It will be interesting to watch if and how they look at recouping this amount in the future. Will it be through individual taxes? Will GST rise to 20%? It won’t happen straight away, but there will be some future implications.
After two weeks in lockdown, the Real Estate Industry is seeing buyers’ confidence dropping each week, and by post-Easter, we will see less buyers and less sellers. This leads us to two scenarios:
Scenario #1 – The Positive Scenario
The number of new cases of Corona Virus decreases to zero, and it stays there consistently for two weeks or more, and Level 4 restriction will be lifted. (By the way, I believe our government is doing an absolutely amazing job throughout this.) If this happens, we may be back to ‘normal’ business as early as May.
Scenario #2 – The Negative Scenario
We get on top of these cases to a certain extent, but we cannot quite reach zero. This leads to more unknown: When will Level 4 be dropped? Will we see a rise in the number of cases again? Will this be regarded as a ‘second wave’? Will the restrictions we have had placed on us now be brought back, but for a longer period?
If the country was to be in a continued state of lockdown for a longer period, the economy would significantly deteriorate. It would be harder for us to recover once over, and the housing market would take a very big hit. There would be unimaginable consequences to businesses and huge numbers of job losses. We would see double-digit unemployment rates, which would lead to a raft of economic difficulties, and consequently a rise in crimes and even suicide rates. This would be a dark time for the country.
Out of interest, in the US, the unemployment rate has jumped from 3.5 to 4.4% between February and March 2020, and this is expected to go up even further in April, with millions out of work.
However, for the most part, it appears that we are moving towards Scenario #1, the most optimistic route. Our government moved quickly bringing in Level 3, immediately followed by Level 4 restrictions. This short-term plan intended to give us long-term gain. Let’s hope this is the case.
But, it still leaves the big question of how quickly can the New Zealand economy get back on track? With restrictions lifted sooner rather than later, the recovery can be relatively quick. Interest rates are still historically low, and the unemployment rates (prior to Covid-19) were the lowest they have been in over 10 years.
How long will the restrictions be in place? We will no doubt be closer to answering that question this time next week. For now, it’s looking like the lockdown is working and we are heading in the right direction.
In the meantime, we need to continue to obey the Level 4 restrictions and stay in our isolation “bubbles”. Let’s hope the number of cases continues to lower. I am all for closing international borders for as long as it takes until we have a vaccine and there are zero global cases. I wish we had shut the borders a lot earlier; however, we have performed better than most countries.
This event is unprecedented; we are making history. Our children will tell their children about this in years to come. One day our great-grandchildren will learn about this in history lessons.
Finally, although we can’t be certain of exactly when we will turn the corner, I do know that we are incredibly grateful for, and thank our essential workers every day. You are doing an amazing job!
Stay safe, remain healthy, and let’s keep striving for scenario #1.
Take care,
Nathan