Summary.   Early this year I noted the coming recovery in New Zealand’s housing market and from February have been able to point to improving measures in my various monthly surveys showing the improvement. Now, discussion about the market turning upward is becoming the norm in the media although there remain some doubters out there basing pessimistic views on interest rates not falling until 2025.

Housing recovery strengthening

Tony Alexander

Monday 4 September ‘23

The thing is, it is not just interest rates which will drive average prices higher over the next three years and it pays to note that prices are now lifting despite average new mortgage rates still climbing slightly since the start of the year.

One of the key driving forces is an acceleration in the pace of population growth to 2.1% in the past year on the back of a net migration gain of 87,000 people. People need somewhere to live and I can see from my monthly survey of property investors that their ability to secure good tenants keeps improving. This bespeaks of some eventual extra upward pressure on rents which will apply extra upward pressure to prices.

There is also the falling away of construction to consider. Costs have soared and buyers are backing away preferring to look at existing properties because of many stories of people losing their deposits.

The demand for new-builds will eventually return, but probably not until 2025.

Extra support for the housing cycle turning upward is coming from improving access to credit. Both Loan to Value Ratio and CCCFA rules have been eased in recent months and those changes have allowed some extra people to access finance.

We should also pay close attention to the declining stock of listings. Since peaking in August last year the stock of properties available for buyers to peruse has fallen by 20% in Auckland and 49% in Wellington. Canterbury is down 12% from its peak in March this year.

There are other factors but these are enough. The track for the real estate cycle is now upward. But there is little reason for believing we are about to see prices soaring. There is strong restraint about to appear in the regions from the deepening weakness in China which is affecting farmers’ incomes. As farmers cut their spending there will be weakness in regional economies which are not enjoying a new tourism boom.

This weakness may see some people shift to the cities while housing markets in most of the regions do what I have been warning for the past year – lag the upturn in the cities.

With regard to interest rates, the time is not yet at hand when we could reasonably expect the Reserve Bank to signal happiness about the outlook. Inflation is still much too high at 6% and the labour market quite tight with an unemployment rate unusually low at 3.6%. Too many businesses still indicate that they intend raising their selling prices, and the recent weakening of the NZ dollar will add slightly to the prices of imported items.

Rate cuts are likely through 2024 with encouragement from the slowing of China’s pace of economic growth and perhaps even a developing El Nino weather pattern which will further worsen conditions in the regions and eventually the overall economy next year.

We continue to live through very uncertain times. But with many people having sat back for two and a half years waiting for stability in the housing market, it remains reasonable to expect rising prices, rising sales, and falling stocks in our main cities this coming year.

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