ANALYSIS: There’s a chill in the air, literally and figuratively. The housing market seems to have one helluva of a winter cold, if the latest economic and sales figures are anything to go by.
This wouldn't be a new malady, though. Rather, it is a continuation of one that started way back in 2022. After post-Covid house prices peaked at the end of 2021, the market took a turn for the worse, in response to rising interest rates and cost of living woes.
House prices fell 18% and didn’t hit bottom until May last year, after the Reserve Bank signalled it was done hiking interest rates. That appeared to be the medicine the market needed, and in the subsequent months, prices started to pick up.
But then, after a summer rush of listings, the market took a turn for the worse and prices started to tumble.
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So, how sick is the property market right now? And what will it take to get on the path back to health?
1. Sales up YoY but still below average
Property sales are up 13% year-on-year – a sign buyers have returned and that demand is picking up. However, there are some worrying numbers "under the hood". Annual sales are still below the long-term average of 81,100 per year, and the June sales figures from the Real Estate Institute of New Zealand suggest buyers are in retreat.
Nationwide sales were down 25.6% year-on-year and 32.6% month-on-month. The tally of 4356 was the worst for June since 2008. In Auckland, the situation was worse. Last month, sales dropped 35%year-on-year and 33.2% month-on-month to 1287 - Auckland's lowest tally for a June month since records began.
How much of this sudden retreat is being driven by seasonality and how much is being driven by weaknesses in the economy and uncertainty around the future of the job market is unclear right now.
Yes, the market is past peak sickness, but it’s recovery looks shaky right now. It still has a valid sick note.
2. Listings up YoY, but vendor enthusiasm is waning
New listings for the first six months of 2024 were up 27% on the same period last year, while the total number of homes for sale on OneRoof at the end of June was just over 39,000 (up 24% year-on-year). Those figures are a huge sign of vendor confidence in the market, but they only tell part of the story.
Sellers flooded the market with listings in February, March and April, hoping to cash in on the widely reported lift in house prices seen at the end of last year.
However, new listings levels started to ease in May, then fell steeply in June, suggesting potential vendors had woken up to falling prices and less favourable market conditions (buyers had more choice and felt less pressure to buy).
The spike in listings probably accelerated the deterioration in house prices, although interest rates and a worsening economy likely had more of an impact.
The number of properties for sale may lift as a result of the July 1 changes to the bright-line period, which has shrunk from 10 years to two years, allowing some investors to sell tax-free.
Increased listings volumes will likely dampen house price growth, but if rates are cut at the end of the year – as some experts are forecasting – growth may be back on the cards.
3. House prices tumbling again
House price growth has evaporated in recent months (which you’d expect in autumn and winter), but this shouldn’t interpreted as the start of a new and prolonged slump.
There are more houses for sale than there are buyers, but the outlook for the market once rates start to fall is more positive. A year and a half ago we didn’t know when the Reserve Bank would call it quits on interest rate rises. Now, we know rates have hit a ceiling and at some point in the future they will come down.
Experienced buyers will use this opportunity to buy at the second “bottom of the market” and negotiate well. But, most will wait until they see more solid signs of recovery.
4. Consents are falling
Aside from a small increase in March 2024, the number of dwelling consents has been falling. They peaked in 2022, and since then, there have been fewer and fewer new dwelling consents.
That means over the next few years, there will be a smaller number of properties built. This is a sign of sickness in the residential construction sector.
Opes Partners resident economist Ed McKnight: "The housing market is definitely over the worst of its sickness, but it’s still not well." Photo / Fiona Goodall
But, it will, in some ways, lead to the market recovering. Fewer new properties will restrict supply compared to 2022. That will restrict competition compared to what would have otherwise been the case.
Rather than contributing to the sickness, the low level of new dwelling consents is part of the medicine.
5. What’s the prognosis?
The housing market is definitely over the worst of its sickness, but it’s still not well.
No additional medicine is needed, just time.
Overall, the property market will likely remain weak for the next six months. Though, the data will be mixed.
The number of property listings will likely increase from the bright-line test. But once interest rates come down, that will give the natural adrenaline the market needs.
Once the average buyer sees interest rates dropping, they’ll expect house prices to rise and bring forward their buying decisions. That’s where people think: “House prices are rising. I better buy now.”
This is how sickness runs its course. Even long after the chills have passed, you’ve still got some time before you recover fully.
The housing market is recovering, but it’s still going to have the odd coughing fit.
- Ed McKnight is the resident economist at property investment company Opes Partners
