ANALYSIS: As an economist my primary interest in the housing market is identifying what is happening with the underlying long term trends which ultimately determine where house prices go, the strength of dwelling sales, and eventually construction. But I'm also strongly interested in what is happening right now at the housing coalface and that sort of information I can get from the various surveys I run each month.
For instance, last week I mentioned some of the key results from my monthly survey of residential property investors undertaken with Crockers Property Management. A net 13% of landlords now say that it is easy to find good tenants and that is the strongest result since March last year. 82% of landlords say that they plan increasing their rents over the next year whereas the average reading for this measure is 75%.
My monthly survey of mortgage brokers tells me that since February banks have been more willing to advance finance than was the case through 2022. I expect a further improvement in that reading soon as a result of the Reserve Banks announcement that they intend slightly easing LVR restrictions come the start of June.
I have just finished writing up the results of my monthly survey of residential real estate agents undertaken with REINZ and the main points to note about what those agents are seeing on the ground right now are these.
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First, FOMO is starting to drift up. Not by a large amount but at the end of last year and in January this year only 4% of agents said that they could see buyers displaying FOMO. The latest reading is 7%. That is still very low and in no way allows one to say that buyers are starting to get nervous about missing price rises.
In fact, 68% of agents say that buyers are displaying FOOP – fear of overpaying. This is well above the three-year average reading of 44% and there is no easing trend in place as yet. There is however a slight decline underway in buyer concerns about the high level of interest rates. 82% of agents this month have said that buyers are displaying such concern and that is the lowest reading since 75% recorded in September last year.
Possibly the main result of importance from my survey of real estate agents is that a net 22% say that they are seeing more first time buyers. This result is consistent with outcomes for the previous two months and it will be interesting to see how this measure develops as we pass through winter. Many first time buyers probably still think they don't need to hurry to make a purchase because there is still an overwhelming majority of real estate agents saying that investors are nowhere to be seen.
Independent economist Tony Alexander: “At some stage potential buyers will realise there is a migration boom underway.” Photo / Fiona Goodall
The agents are also saying that not many people are showing up at auctions and the results for attendance at open homes are not as bad as they were last year but they're still reasonably flat.
The situation which first home buyers perhaps need to keep an eye on is this. They and many of their friends have been sitting back since the start of 2022 watching house prices falling, unwilling to contemplate making a purchase until they feel that house prices have bottomed out. Clearly, they do not feel that we are there yet.
But there must be tens of thousands of people in this queue of potential buyers and at some stage they're going to reach a collective decision that there is no point waiting any longer. Although real estate activity tends to be very quiet in winter, interest rates are high, and there is an election coming up there are bigger longer term factors which are increasingly going to come into play, and these are the things I concentrate my attention on as noted in the first sentence above.
At some stage potential buyers will realise there is a migration boom underway, that interest rates have peaked, and 3-5 year fixed rates have already fallen around 0.7%, that construction is falling away, that listings are declining (so far 11% off their peak), and that rents face new upward pressure from returning tourists and students and landlords selling their properties.
We seem to be now very close to the bottom of the cycle – and why not? The consensus view in Australia is that they bottomed out in February.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
