Tony Alexander: With so much interest in the housing market, what is holding buyers back?

ANALYSIS: The residential real estate market turned upward in the middle of last year with a 20% rise in sales during the June quarter and prices increasing on average 0.9% a month from July through to October (Auckland 1.2%). But since then sales have flattened out while prices have fallen 0.3% over the November–December period (Auckland -1.3%).

Much of the easing in the market’s cyclical recovery can probably be put down to the general election in mid-October, rises in fixed mortgage rates up until late-November, and most of us embracing summer holidays with a vengeance.

How are things tracking now that almost all of us are back at work, there have been small cuts in interest rates (just 0.05% to 0.2%), and most people must surely by now have given thought to what a 2.5% migration-driven boost to our population will do to rents and then house prices?

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I’ve just completed and distributed the results of my first monthly survey of real estate agents for the year alongside NZHL and the results show that while markets around the country are positive, buyers don’t yet feel the need to hurry and some big impediments to purchasing remain.

Let’s start with my measure of housing FOMO (fear of missing out) – the only one on the planet as far as I can tell. A gross 23% of agents (21% in Auckland) say that buyers are displaying a fear of missing out. This is well ahead of 4% a year ago and 9% in May, but down from a peak of 40% in September and 28% late in November. Buyers have become more relaxed after their initial surge into the market.

A net 55% of agents (50% Auckland) say that they are seeing more first-home buyers in the market. This is consistent with other results since May so we can confidently say that the young buyers are still around.

We can also say that investors are starting to tentatively appear. A net 24% of agents say they are seeing more investors (16% Auckland) versus a net 13% as recently as July saying they were seeing fewer such buyers.

But at the same time that more buyers are showing up, so are more potential sellers. A record net 76% of agents have reported that they are getting more people asking for property appraisals. Auckland’s reading is 75%.

Independent economist Tony Alexander: "Buyers are still struggling to get a deposit together and meet bank lending rules." Photo / Fiona Goodall

With so much interest in the market, what is holding buyers back? I ask agents why buyers may be hesitant and 56% have said that getting bank finance is the main problem. This reading is down from 70% a year ago and the trend is down. But it is very slow and many agents noted that buyers are still struggling to get a deposit together and meet bank lending rules. Those rules have eased this past year but only in small fits and starts. We remain a long way from the situation before the previous government’s ill-thought out changes to the Credit Contracts and Consumer Finance Act were implemented in December 2021.

Only 25% of agents say that buyers feel there are not enough listings, down strongly from 55% in September and reflective of the market upturn from mid-2023 bringing forth more vendors. Just 43% of agents say high interest rates are a problem. This is down from 72% three months ago but given that borrowing costs have fallen only slightly since then we can interpret the result as reflecting people’s expectations that interest rate cuts are coming later this year.

Only 12% of agents report that buyers have a fear of over-paying (FOOP). That is, making a purchase then seeing prices fall. Personally I wouldn’t care, but some people do seem more focused on what they have missed out on rather than what they have got.

Overall, for now the residential real estate market in Auckland and around the country on average has flattened out. As noted previously I expect the upturn to gather new steam this year in response to falling mortgage rates, the impact of booming migration, falling construction, and tax changes. But accurately picking when this happens is impossible. Maybe by mid-year.

- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz