Tony Alexander: Six signs the housing market ‘frenzy’ has passed its peak

Over the past four weeks we have seen a small number of signs appearing telling us that peak frenzy in housing markets around New Zealand was probably reached in November last year, and things are now on a slowing track. Having said that, activity remains very strong, FOMO is rampant, and I have received many emails from people describing what they consider to be extreme prices being paid for some properties.

So while there may be a slowing underway, we are well away yet from being able to use words to describe our housing markets such as “calm” or “steady”.

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One slowing indicator comes from REINZ’s House Price Index for all the country which rose by 3.9% in November, but then by 2.2% in December and 1.3% in January. Prices growth has slowed. Sales nationwide in November were 34% ahead of a year earlier, December 46%, but January just 3%.

In my monthly mortgages.co.nz & Tony Alexander Mortgage Advisors Survey, a net 5% of advisors reported that they are seeing fewer investors coming forward for advice. This is the first time that particular indicator has been negative.

In the REINZ & Tony Alexander Real Estate Survey only a net 15% of agents last week said that they were seeing more investors in the market. That is an increase for sure. But it is less than the net 31% in February seeing more investors, 45% in December, and 59% in November.

That survey also told us that in early-March a net 5% of agents were seeing more investors stepping forward to sell their property. That is the first time this measure has been positive. Up to this month all other months had produced a net balance of agents saying that fewer investors were looking to sell.

Finally, in my Tony’s View Spending Plans Survey for March, a net 5% of the over 1,200 people replying said that they planned buying an investment property over the next 3-6 months. That result is down from 11% in February and a peak of 13% in December.

Interestingly, while there was also a fall in the net proportion of people saying they plan buying a home to live in, the decline was small from 6% to 4% with December having been also 4%.

Basically, the data in hand show slowing price growth on average, and my surveys suggest some investors are pulling back from extra buying while bringing some of their properties forward to the market.

The time is certainly right to do so for those who have some properties they might like to “rationalise” out of their portfolio. That means the still large number of people wanting to start on the property investment ladder need to take care when buying a property and get it assessed so there is full knowledge of repairs which might need to be made. Plus, for some, standards will still need to be lifted to meet Healthy Homes legislation.

I mention this need for caution because a net 86% of real estate agents around New Zealand are observing FOMO on the part of buyers, with a net 88% still seeing prices in their area as rising.

Just to finish off there is one other important point to note. Talk is increasing regarding mortgage rates rising over the next three years. I’ll write more in coming weeks but two things to note are these. First, the extent of interest rises this coming cycle will likely be small because sensitivity to rate movements will be far greater than ever before in New Zealand. That is good news for businesses and exporters via the exchange rate link.

Second, fixed interest rates will rise months, if not a year or more, before floating rates start rising. Good risk management would suggest people looking to smooth the impact of cyclically rising rates are incentivised to spread their fixed rates across terms out to five years, rather than focussing solely on the 2.29% one-year rate - extremely attractive as that rate may be.

- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz