ANALYSIS: The Reserve Bank of New Zealand has signalled that it is now done raising the official cash rate, following last week’s 0.25 percentage lift to 5.5%. The RBNZ doesn’t expect to start cutting the rate until late-2024 but there is a reasonable chance it will start before that – maybe early next year. But that is a long way from now and anyone holding off buying because they think house prices won’t start rising until interest rates start solidly falling, had best think again.
I have in hand most responses in my monthly survey of real estate agents throughout the country undertaken with the Real Estate Institute of New Zealand. I’ll wait some days for the tail-enders to reply then get the report out about a week from now. But here are some of the preliminary results which gel strongly with the view that the market has probably reached a bottom and the move upward may be closer than many are thinking.
First, we need to note that there is as yet no sign that prices are on average rising. A net 31% of agents still see them as falling in their area. And when I ask them what buyers are most concerned about, after high interest rates and access to finance, 49% say worries that prices will fall.
FOOP – fear of over-paying - is 49% and that is the least weak reading since January last year’s 22%. The reading a month ago was 68%. So, fears of price falls are still there in the minds of buyers. But their fears are easing off.
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FOMO – fear of missing out – has now risen for four months in a row. But at 9% we cannot say buyers feel they need to be in a hurry. In fact, one of my readings shows that we are still very firmly in a buyer’s market.
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Again, we can see that first home buyers have essentially decided that the time is right to make a purchase. Listings are good, interest rates have hit their peaks, vendors are willing to accept conditions, and there remain few investors to compete against. A net 54% of agents say that they are seeing more first home buyers. Last month this reading was 22%, January it was -3%, and the latest number is the strongest since October 2021.
Presumably it is the young buyers who are getting to the open homes. A net 30% of agents say that despite the approach of winter they are seeing more people attending open homes. Last month only a net 3% said this and the latest result is the strongest since 43% in February 2021. The peak was 64% in January 2021.
Other numbers from my survey suggest auctions are close to seeing higher attendances, net selling intentions of investors are easing, and only a small number of extra investors are showing themselves to be motivated by hopes of finding a bargain.
Independent economist Tony Alexander: “First home buyers have essentially decided that the time is right to make a purchase.” Photo / Fiona Goodall
Backing up one of the defining characteristics of this period of economic challenge which we are traversing is a still strong reading for people’s feelings of job security. On average since I started the survey in May 2020 15% of agents have said that buyers are worried about their employment. The reading back then was 48% which fell to 45% in June 2020 and hit a low of 4% in the middle of 2021.
The latest reading is 13% and that is largely what the result for this issue has been since November last year. It may well be that the Reserve Bank’s talk of recession at the end of November last year scared many people. But evidence on the ground is that job numbers continued to rise through the most recent December and March quarters, and people feel that the weekly pay cheque will continue to arrive.
In summary, the survey’s results tell us at a minimum that the market is bottoming and that this is being driven by first home buyers.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
