Turning of the housing cycle
Data recently released by REINZ show unequivocally that at the national level and in Auckland particularly the downward leg of the housing cycle which started in the second half of 2021 has come to an end.
In seasonally adjusted terms during the June quarter nationwide dwelling sales were ahead 19% from the March quarter. In Auckland, the gain has also been 19%. In seasonally adjusted terms nationwide prices rose by 0.7% in June after sitting flat in May and April.
We have to be careful not to over-extrapolate monthly data because in a small country like New Zealand, such data can be quite volatile. We have to be extra careful when a cycle is showing signs of turning because one can get positive and negative movements for a few months before the new direction becomes entrenched.
But it seems reasonable to conclude that things have changed, especially when we look at results from my monthly surveys of real estate agents and mortgage brokers – though not yet is recovery evident in my survey of consumers.
At the end of June, a net 56% of agents around New Zealand and 63% in Auckland said that they are seeing more first-home buyers in the market. 19% of agents nationwide and 27% in Auckland have said that they can see buyers displaying concerns that if they delay making a purchase they will miss out – FOMO is rising.
A net 18% of agents nationwide and 45% in Auckland say that they are seeing more people attending auctions. A net 41% nationwide and 55% in Auckland say they are seeing more people at open homes.
Why are things turning around? It is certainly not because interest rates are falling. That is a boost yet to come and will likely see quite strong market activity through 2024 and 2025. Instead, for the moment we can see that it is mainly first-home buyers driving the market shift. Investors are waiting for the election outcome and if there is a change in government, we can anticipate the return of investors to the market for the first time since February 2021.
First-home buyers are taking advantage of a good quantity of listings to choose from. But having choice is not a key driver of demand. Instead, we can look at the 18% average nationwide fall in house prices since the end of 2021 with Auckland down by 23%. While prices have fallen rents have continued to rise.
There has also recently been a record non-pandemic surge in migration flows and the past three months have brought increasing media discussion and therefore popular awareness of the surge and of the logical pricing impact.
Another key factor in play I have discussed many times before – high job security. In past periods of recession in New Zealand – whether real or just technical involving two quarters in a row of economic activity falling – the number of people employed has gone down straight away. This time around the small shrinkage in our economy of 0.8% over the six months covered by the December and March quarters has been associated with job numbers rising by 1.3%.
Young people have decided there is little point in waiting any longer to make a purchase. The thing to consider is this. The residential real estate market is no longer falling and may be turning upward, and the popular view is that this upturn will be calm and gradual and price gains will be mild. I doubt that when we consider these things set to come into play over the next couple of years.
- Falling interest rates.
- Falling house construction (already declining for two quarters so far).
- Falling listings already 14% below their late-2022 peak.
- An increasingly probable change in government and return of investors to the market.
Allowing for the tendency for the stock of listings to fall as sales rise and the role a shortage of property played in driving prices upward over the second half of 2021 and we get strong potential for firm price gains through 2024-25. This especially applies to Auckland which by the long-term measures I track presents itself as under-priced now compared with the rest of the country.
Tony Alexander is an independent economist and produces a free weekly publication with a housing focus called “Tony’s View”, available for signup at www.tonyalexander.nz