The endgame starts
Not many things move in straight lines in the world of economics, and not many things stay forever in a strong state or a weak state. Often things move in cycles, and this is particularly true of the housing market. This characteristic arises not just because of the broader economic cycle but because of the unique dual characteristic of housing.
It provides each of us with a flow of services in the form of a roof over our heads, a place to raise a family, a base from which to go to and from work, markets, and suchlike. But it is also an asset which we use to help fund our retirement by downsizing to less expensive accommodation when the time is right.
To boost that wealth accumulation aspect, we also treat houses other than the one we live in as an investment asset. There are times when many people are seeking to purchase such an asset and other times when they aren’t. When interest rates are high the cost of purchasing a housing asset increases because most people make their purchases with someone else’s money borrowed from a bank. So, we put off our buying.
This putting off usually coincides with people thinking about upgrading and people looking to make their first purchase also backing off. That is what has been happening since March 23 for investors and since late last year for potential owner-occupiers. Their actions continue to dominate the real estate market and we see this easily in terms of falling prices, now down by 10.4% from their November 2021 nationwide peak.
The weakness manifests itself also in an increasing average number of days taken to sell a dwelling, now sitting at 47 from 31 a year ago. Turnover is down around 37% from a year back and the stock of properties being offered up for sale is double that of a year ago.
All of these four measures are getting worse. But as noted above, housing is an asset and a thing bought to deliver services over decades and not just something influenced by job security. So, if we are going to pick where the housing market is going, we don’t need to wait until the data actually shows it going back up and then simply extrapolate from there.
If we can gain insight into people’s attitudes, then we can pick changes months before the general public will read about a turning point. That is why I have set up five monthly surveys of real estate agents, mortgage advisers, portfolio investors, property investors, and people generally. I can look through the results and see when the picture is changing for the economy overall and for housing in particular.
The latest data I have in hand tells me that the endgame for this period of a weakening housing market has started and come perhaps the turn of the year we will be very close to rising sales and prices once again.
One sign comes from my monthly survey of mortgage advisers with mortgages.co.nz. A net 25% of advisers have reported that banks are becoming more willing to lend, and a net 8% have said that they are seeing more first home buyers making enquiries. These are the strongest such results in 22 months and 18 months respectively.
From my survey of real estate agents, for which latest results are still embargoed, we can see that auction attendance is rising from a low base, that the pace of downward price pressure is easing, that first home buyers have regained some interest, and even investors are becoming less disinterested despite the higher financing costs and tax rule changes.
The market is definitely not yet at a turning point. Prices have further to fall. But if I had to draw the housing cycle in physical form, the graph would be sloping downward less and less now. The main implication of my various results and interpretation of them is a simple question for first home buyers.
What is more important to you? Holding out for the last 5% in the price cycle, or securing a home in which to raise a family when vendors are increasingly eager to negotiate, and choice is double what it was a year back?
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