ANALYSIS: The five surveys I run monthly provide coalface insights into what is happening in the economy and the residential property market. For investors, the key insights include the following.
From my survey of real estate agents with NZHL, we can see that investors have retreated. In January a net 24% of agents were seeing more investors in the market, now a net 25% are seeing fewer. The biggest drop in this measure occurred in February when it fell to -5%.
What’s interesting is real estate agents saw this big pullback in investor demand much earlier than mortgage brokers. In January the survey of brokers I run with mortgages.co.nz showed a net 29% of brokers were seeing more of them coming forward for advice. That reading was 28% in February and 26% in March.
But it fell to 10% in April and this month only a net 7% of advisers say they are seeing more investors. What I take from that is this: after showing some interest in buying again in 2023, after first-home buyers jumped strongly into the market, investors disappeared again. But they kept talking with brokers because of the need to manage mortgage interest rate fixing in an environment where the underlying expectation is that the next sizeable change will be downward.
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This is challenging for borrowers. Do you continue to float or fix for just 6-18 months even though that policy has not worked so well recently, or do you fix three years or longer to avoid all the hassle and know your cash outflows?
If I were borrowing now, I’d stay short because I believe the Reserve Bank has over-tightened monetary policy and, later this year, will cave to the reality of their economic attack and cut interest rates quite quickly. One day I’ll be right. But continually rolling over at a six-month rate for instance can be tiresome.
Another investor reading I get from my real estate survey gives some insight into the role of investors as sellers. Plenty expect a flood of investor sellers from July 1, when the bright-line test changes from 10 years to two years.
In August last year, a net 1% of agents said they were seeing fewer investor sellers. This reading shifted in January to a net 14% of agents who were seeing more investor sellers, before spiking in February to a net 26% of agents. It is still high, at net 17%, although some investor sellers will have backed off now that the country is solidly back into a buyer’s market and FOMO has disappeared.
Independent economist Tony Alexander: "If I were borrowing now, I’d stay short." Photo / Fiona Goodall
A key reason behind the trend up in investor selling is likely to be their increasing average age and rising need to fund retirement at a time when holding a rental property has been made a lot more expensive by tremendous hikes in insurance and council rates.
These hikes in expenses will be triggers for selling, and that’s good news for first-home buyers. However, many have now retreated into their shells because of unemployment worries.
At this stage, I struggle to find reasons for believing that price movement in the housing market will shift upward through winter and spring. But come summer falling interest rates are likely to start turning things around. Then when people realise how much construction is falling away and how many tradespeople will have gone to Australia, the scene will be set for potentially much stronger price growth through 2025.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
