Pace of house price rises to slow

But when REINZ released their February data we saw a rise of 5.3% reported. The frenzy of buying which drove that unusual surge was still there, though slightly weaker, in March when the average price gain was 2.7%. The chances are high that the April gain to be reported mid-May will be very small and might even be negative.

In fact, it would not at all be surprising to see a few months of average price falls over the remainder of this year. This is because the 28% rise in house prices around the country since May is not a pace of rise one could reasonably expect to continue, and the government on March 23 took a range of measures which they hope will cool things to a high degree.

The most significant of those changes was removal of interest expense deductibility for investors buying existing properties, and the same removal for those already holding properties by this time in 2025. The change means that the average investment property will now cost perhaps $5,000 more to hold than was previously the case for those investing with a mortgage.

Investors have naturally reacted strongly to the change and the three monthly surveys I run which provide insight into the residential property market have all shown this reaction. In my mortgages.co.nz & Tony Alexander Mortgage Advisors Survey for instance a net 46% of advisors said they have just seen a pullback in investor enquiries.

In my REINZ & Tony Alexander Real Estate Survey a net 41% of agents have said they are now seeing fewer investors, a net 11% say fewer people are attending auctions, and a net 23% say fewer people are at open homes. In my Tony’s View Spending Plans Survey a net 10% of people have indicated that they plan to reduce their spending on investment property. In March, a net 5% had planned higher buying and in December that was 13%.

Do these results mean that we should now expect an extended period of house price falls? No – although as noted above, I expect some negative months over the remainder of this year as some investors no longer buy and some choose to sell. Many will raise rents.

Investors have an established history of reacting very strongly when regulations are changed against them, with threats to exit the market and deprive renters of accommodation. But these threats of the past have not been carried out and those who stayed in the market have reaped very strong capital gains.

That is completely the opposite of what they have experienced through holding houses. Few will sell.