Tony Alexander: Buyer’s market is about to come to a shuddering end

ANALYSIS: The general view amongst property market analysts is that the housing market has almost certainly bottomed out and from here prices are more likely to edge up rather than down while turnover climbs. We can already see rising sales in the near 19% seasonally adjusted rise in nationwide sales in the three months to May compared with the three months to February. Prices however have simply flattened out and have yet to start rising on average. But we don’t seem far off from that happening and come the end of the year a pace of price gain between 5% and 10% is quite possible.

I have repeatedly highlighted the factors behind my view of prices rising this year and they include a migration boom (much bigger than expected), falling new house construction, improving bank willingness to lend, high job security, the push from rising rents, and interest rates peaking. Yet to come into play is a falling stock of listings, but when that happens the large queue of buyers who have been holding back since early-2021 is likely to get activated into action.

My latest survey of real estate agents undertaken with REINZ is increasingly telling us that this large number of people is starting to get off their couches and re-engage with the market. The measures I have from my latest survey for which most responses are already in hand are too numerous to cover here. But here are the main insights. The full write-up will be released next week with regional breakdowns.

FOMO is coming back. Approximately 19% of agents say that buyers are displaying signs of a fear of missing out. This is the highest reading since the 22% of January 2022 though is well below levels above 90% early in 2021.

FOOP – fear of over-paying – is falling. Only 38% of agents say that buyers are worried about prices falling after they make a purchase. This is down from 49% in May, and levels close to 70% for all other months since March last year. FOMO and FOOP aren’t crossing yet – but that event looks imminent.

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The strong buyer’s market which has been in place since February 2022 is almost gone. Only a net 7% of agents say that buyers have the upper hand in their area. Last month’s reading was 29%, April was 30%, and March 41%.

34% of agents say that buyers are expressing concern about a shortage of listings. This is up from 25% last month and only 9% in January, but still well down from 82% in the middle of 2021 when worries about the shortage of listings propelled prices higher at the time despite rising interest rates and much tighter lending conditions.

Buyers still remain concerned about access to finance and the high level of interest rates. So, the settings of the Reserve Bank are still placing a high degree of restraint on the market. In that regard nothing suggests that the market is about to boom. But it has turned. If there is a boom this cycle, it will come over 2024-25 as interest rates decline.

Independent economist Tony Alexander: “Approximately 19% of agents say that buyers are displaying signs of a fear of missing out.” Photo / Fiona Goodall

One other point I have been making regarding the market when it turns is that Auckland is under-priced based on some long-term analytics I run, and it will outperform the regions this cycle as generally defined. We can already see that in my survey of real estate agents this month. All of the readings for Auckland are stronger than for the rest of the country on average, and the city is back into the state of being a seller’s market with a net 8% of agents saying power now lies with the vendor.

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