ANALYSIS: There is no improving upward momentum in the New Zealand residential real estate market. We can tell that from a number of sources and the most recent one is the monthly set of data just released by REINZ.
Starting with prices and using the nationwide index put together by the REINZ we see that average prices fell 0.6% in March and over the March quarter the average change was a monthly rise of just 0.2%. In the three-month period before that ending in December, the average monthly change was a rise of only 0.1% and before that 0.3% for the three months to September. There is no acceleration in price growth underway.
There is also no lift in turnover occurring. While the annual number of dwelling sales has risen to near 73,700 from 65,700 a year ago, the seasonally adjusted change for the March quarter has been a fall of near 5%. This followed a rise of 9% in the December quarter and 10% gain in the September quarter. The New Year has brought a step back in real estate activity after a surge in the second half of last year.
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Why this absence of improving market strength at a time when interest rates are still trending down and there are widespread expectations that our economy will grow nearly 2.5% this year and deliver a stronger jobs market?
The absence of anything more than mediocre price gains we can perhaps put down to the sheer number of properties on the market. Stock at the end of March stood 11% higher than a year ago and at the highest level since 2015 at around 33,000 units.
But this doesn’t necessarily explain the lack of sales growth. We can perhaps put that down to consumers becoming decreasingly optimistic about prospects for our economy as the year has advanced. For instance, at the end of last year, a net 10% of people responding in my Spending Plans Survey said they planned on buying more things in the coming 3-6 months. Now, a net 19% plan to buy less.
Independent economist Tony Alexander: "Stock at the end of March stood 11% higher than a year ago and at the highest level since 2015." Photo / Fiona Goodall
At the end of last year, 36% of mortgage advisers in the survey I run with mortgages.co.nz said they were seeing more investors in the market. Now only a net 2% say that. The proportion of real estate agents saying they see buyers displaying a fear of missing out (FOMO) is only 14% compared with 40% late in 2023 and over 80% late in 2020. Buyers feel no need to hurry and make a purchase.
Widespread reporting of an over-supply of townhouses is likely to also be having an impact on prices and supply. In fact, according to my sources, some developers who have held completed stock back from the market are now being forced by their financiers to bring those units forward for sale.
Will the housing market gain extra strength as we proceed through 2025? Probably, but not until spring. The tariff war initiated by the United States has shocked global sentiment and made people pull back anew on their spending plans here and overseas. Investors have lost money in their managed funds accounts, meaning house deposits have shrunk for some people, and costs associated with owning property keep climbing.
It may take a long time before the tariff war stabilises, and even longer to figure out the impact on global growth, supply chains, and inflation. Until then, buyers are likely to continue to feel no great need to rush and make a purchase, and vendors will have to seriously consider discounting their asking price if they want to get a sale across the line.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
