Summary.   It seems reasonably safe to say now that we are at the bottom of the housing cycle in terms of prices and turnover – but we don’t know how long we stay in a position where things are no longer getting worse. Moreover, we can’t realistically take a strong view on when things move upward and the speed with which prices will rise when that cyclical change starts. But the clock for these things happening is ticking.

Housing cycle turning

Tony Alexander

Tuesday 13 June ‘23

We can see evidence for the bottoming out idea in the 11% seasonally adjusted rise in nationwide dwelling sales in April according to REINZ data. Their data also show that prices, again after adjusting for seasonal factors, were flat in April after falling 0.1% in March.

The discussion about the market potentially being at the moment which we have seen building in recent weeks, is now likely to get stronger for a number of factors. Highly important among these was the decision by the Reserve Bank on May 23 to raise the official cash rate by 0.25% and unexpectedly signal that they don’t feel they will need to raise it again.

This came as a surprise in light of the extra stimulus contained in the Budget and uncertainty surrounding the net impact on inflation of shifting migration flows. The fact that people can now see the worst-case scenario for their home loan rate doesn’t mean they will start talking soon about rates falling away.

But crystallisation of the worst can at least bring a few hesitant buyers back into the market to take advantage of the good number of properties listed for sale.

A second important factor is the change in net migration flows from a loss of 19,000 people a year ago to a gain in the year to March of 65,400. Excluding the early days of the pandemic this is the highest number ever experienced by New Zealand and that gels with data also showing record net inflows for Australia and the United Kingdom.

More people means more demand for housing and we can see this showing up already in some rental markets around the country with landlords reporting that it is becoming easier to find good tenants.

Also factoring into the mix of things suggesting the cycle will turn up soon is the removal from June 1 of the very tight LVR rules. From June banks will be able to have up to 15% of their new lending at below 20% deposit, up from 10% in place since November 2021. In addition, the minimum deposit for investors has been cut from 40% to 35% of the property valuation.

A fourth factor to consider is the good 0.8% growth in job numbers in New Zealand in the March quarter which followed 0.5% growth in the December quarter.

High job security will make people feel more encouraged to purchase a property than if they fear widespread redundancy.

A fifth factor is the wholesale shifting away of nervous buyers from purchasing off the plans towards perusing listings of existing stock. Many stories have appeared of builders and developers failing amidst huge cost increases and supply issues for labour and materials.

These factors are going to soon start acting on the queue of delayed buyers who have been standing back from the market since early in 2021. Initially buyers stood back because prices were soaring and stock to choose from was very limited. Then they stood back because prices were falling. Now, stocks are high (though falling) and prices more reasonable. I can also see from my latest survey of real estate agents that people are becoming slightly less worried about prices falling further.

Add all these things together and the message to buyers is that there is now very little payoff likely from holding off any longer. The question now becomes how quickly will this two-year queue of people step forward?

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