Could the coronavirus hit the housing market?

The coronavirus outbreak in China could impact tourism and economic growth in New Zealand, having a knock-on effect on the official cash rate, according to one economist.

Thursday, January 30th 2020, 4:17PM 1 Comment

Independent economist Tony Alexander believes the pace of economic growth could be slowed by the virus, amid declining tourist numbers entering New Zealand. 

The reduction in tourism will "reduce the ability of businesses to raise prices", leading to reduced inflation. Subsequently, there could be "less chance of higher interest rates this year and the return of a possibility that rates get cut," Alexander said.

The economist added: "The negative economic impact to come from the new virus outbreak increases the chances that there will be another easing of monetary policy this year. A cut in the cash rate at the next review on February 12 is extremely unlikely, and while the Reserve Bank will note the downside risks, they will probably be quite reluctant to signal a new bias toward lowering rates – given what is happening in the housing market.

"The main impact of the virus outbreak is likely to be some declines in medium to long-term bank borrowing costs. This week such declines only amounted to around 0.05% so as yet market impact is minor. We wait and see."

Alexander, keynote speaker at last year's TMM Better Business Conference, believes the coronavirus, if it continues to spread, could hit regional housing markets reliant on tourism.

He added: "All up, at the very margin, a virus outbreak looks like a net negative for housing markets in tourism-focused locations like Rotorua and to a lesser extent Queenstown and Wanaka.

"But elsewhere in the country the interest rates effect and potentially tiny net migration effect could be a small net positive – unless the outbreak develops into thousands of people dying offshore with no clear end in sight."

Tags: housing market OCR OCR forecasts Tony Alexander

« Mortgage lending strong in DecemberWill the Reserve Bank change course? »

Special Offers

Comments from our readers

On 31 January 2020 at 1:29 pm Chatterbox said:
Watch insurers move to block claims. Banks insist on insured mortgages. End of market !

NZ Govt. allows returning foreign students to move back into University accomodation dwelling apartment towers. They will become hot house incubaters for Coronavirus. Then watch CBD clear out. Apartments will crash in value. End of that market ! Who do you blame? Not hard !

Sign In to add your comment

© Copyright 1997-2020 Tarawera Publishing Ltd. All Rights Reserved