Housing upturn now underway
Last month I wrote about how the buyer’s market in NZ residential real estate which has been in place since January 2022 was almost gone. Now it has.
In my latest survey of real estate agents around the country a net 2% have said that sellers now are in the stronger position in negotiations with buyers. I haven’t yet broken down the data at the regional level, but a month ago Auckland was already in a small seller’s market, and I expect that has grown more strongly in this month’s survey.
I can also report that for the first time since November 2021 my reading for FOMO now exceeds my reading for FOOP. The former acronym refers to fear of missing out, the latter to fear of over-paying. A gross 33% of agents now say that buyers are worried about missing out whereas that reading was 19% at the end of June and ranged between 4% and 9% for the previous months from February 2022.
Only 28% of agents say that buyers are worried they will buy and then prices will fall further. This was 68% three months ago. Why have things turned around?
I have been running through a list of factors contributing to buyers re-entering the market since February this year and they include the following. Prices have fallen on average 18% since late-2021, so affordability in terms of price versus income is a lot better.
Rents have continued to rise while wages growth has exceeded inflation these past three years. Banks have eased up on their lending criteria in recent months. Buyers have switched from seeking new builds to preferring existing dwellings in many instances because of the unfortunate problems which some buyers have encountered as their builders have struggled to adjust to a 30%+ rise in construction costs over the past two years.
There is also an impact coming through now from the statements by the Reserve Bank from late-May that they do not plan raising interest rates any further this cycle.
So far, we can see that these factors have brought first home buyers into the market but not investors. The latter are waiting to see if there is a change in government on October 14 and if there is then the return of interest expense deductibility is likely to see a good number re-enter the market as buyers.
Ahead there are other factors which are going to come into play which will propel the real estate market higher and likely produce average price gains exceeding 10% in 2024 after a rise of perhaps 5% on average nationwide this year.
The effects of the migration boom are showing up in the rental market, but popular discussion of the housing impact has yet to take off. This will come but perhaps not for a few months more as general pessimism ahead of the election keeps Kiwis focussed on stories of people shifting to Australia. The numbers coming in easily swamp the numbers leaving to the amount of 78,000 in the year to May.
Interest rates are likely to fall through 2024 and 2025 and that change will make purchasing possible for the many people currently who cannot meet debt servicing requirements with bank test mortgage rates near 9%.
House building is falling away, and reduced supply growth will eventually attract some attention – though again this looks to be a story and factor in play for 2024 rather than this year.
Finally, it pays to note that history shows when sales rise the end of month stock of listings goes down. Already nationwide listings have fallen 14% from their December 2022 peak. Christchurch is down 10% from its March 2023 peak, Auckland is down 18% from its August 2022 peak, while Wellington listings are off 44% from August 2023.
The cyclical housing market decline has ended on average. Now the upturn has started and while the road will be bumpy because of many post-pandemic uncertainties and debt to income ratios coming along next year, it could last for 3-5 years. To sign-up to my free weekly Tony’s View publication go to www.tonyalexander.nz