Easing in price gains underway

The main indicator comes in the form of the REINZ’s monthly house price index which after rising 3.9% in November increased 2.2% in December then 1.3% in January. We could easily see a stronger gain reported for February as some investors would have scrambled to lock in a purchase and finance drawdown before the new 40% minimum deposit requirement became mandatory. But the easing trend is clear.

There is also an easing trend in the pace of annual growth in dwelling sales – but one might argue that could reflect a deficiency of stock. At the end of February, data from realestate.co.nz tell us that the number of properties listed for sale was down by 23% from a year earlier.

There are other signs that things might have turned the corner and a reduced underlying pace of growth in prices is in the offing. My monthly Tony’s View Spending Plan Survey shows that whereas in December a net 13% of respondents reported that they intended buying more residential property, and in February a net 11% reported this, come March only a net 5% planned investing more in property.

This result is highly likely to reflect the new 40% minimum deposit rule for investors. But it will also likely reflect the simple tendency for demand to ease in response to an increase in supply, while supply can tend to go up.

Anecdotal evidence is in fact suggesting that some investors with large portfolios are easing off on their purchasing for the moment, but increasing their sales of some properties which perhaps require a tad more than average “attention” in the near future.

In the REINZ & Tony Alexander Real Estate Survey a net 5% of agents reported that they are seeing more investors bringing their properties forward to sell. This is the first time that this measure has switched from negative.

There might also be some buyer caution associated with discussion about what the new instruction to the Reserve Bank from the Finance Minister implies. The Finance Minister now requires the Reserve Bank to take the government’s housing policies into account when making its decisions, and to report on how its actions or inactions will affect desired outcomes.

There is little agreement on what a sustainable price is and no number for average prices growth has been set. So that requirement may not have much impact. With regard to moving to ease off investor demand for existing property, this tells us that the government is probably well aware of the extreme pressures which are developing in the rental market – especially toward the lower end of the price range – and they do not wish to stand in the way of investors financing the construction of as many new rental properties as possible.