ANALYSIS: Using the data and comments gleaned from my five monthly surveys I can tell 2-4 months ahead of the general media and public what is happening in the residential real estate market. I could see the return of first home buyers from February, the ending of investors backing further and further from the market in March, and a turnaround in bank willingness to lend at the same time.
Then in May I could see the return of people to open homes followed by their return to auctions in June, with an extra surge in first home buyers also evident in the data from May.
More recently in July FOMO (fear of missing out) climbed substantially higher and the country switched from a buyer’s market to a seller’s market. At the same time I could see that buyer concerns about the volume of listings had risen to above average levels while worries about prices falling after purchasing (FOOP – fear of over-paying) fell well below average.
Now, there is a new development evident in the monthly survey of mortgage advisers I run with mortgages.co.nz. A net 24% of brokers have just reported that they are seeing more investors coming forward looking for advice about their financing and interest rate options. This is the strongest result since January 2021 and tells us that the market has now reached an important milestone. The investors are coming back to add to the still strong demand from young buyers.
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Why are investors re-engaging with the market? One reason will be the record now established of rising prices. In seasonally adjusted terms average prices have risen 0.7% in each of the three months to August. Price rises are strongest in the three main centres of Auckland, Wellington and Christchurch. There’s an old saying that the trend is your friend. Rising prices in an asset market beget rising prices and we have now hit the very first stage of part of the house price cycle.
Another reason will be the increasing discussion about housing pressures arising because of the surge in migration inflows into New Zealand. Existing investors are reporting that good tenants are relatively easy to find according to a monthly survey I run with Crockers Property Management. This will probably push rents higher, but the bigger outcome of relevance to property owners will be the increased ability to await a good tenant rather than taking the first that comes along.
Finally, the political opinion polls are suggesting a firm chance of a change in government mid-October which will see the full return of expense deductibility by mid-2026. Because all my surveys and various other data sources show a large withdrawal of investors as buyers when the tax rules changed in March 2021, it is reasonable to expect that changing the rules back will see buyers return – as they are doing.
Independent economist Tony Alexander: "For young buyers the wide window of opportunity to make a purchase with little competition and vendors willing to accept offers with many conditions is closing rapidly." Photo / Fiona Goodall
Are we talking about a big return of investors and prices soon soaring? I don’t think so. It will take almost three years for full expense deductibility to return, interest rates are high, costs for things like maintenance, rates, and insurance are rising, and a minimum deposit of 35% is needed for debt-funded purchasing.
Banks are also still wary of lending to new investors and continue to place pressure on existing ones to get their debt down before expanding. So, surging prices in the near future are not likely. The upward leg of the credit cycle has not really started yet.
But the many developments underway reinforce the view I have been expressing since early this year of nationwide prices on average gaining around 5% this year. The chances of accuracy from my view from a few months back that prices rise near 10% over 2024 and 15% over 2025 are also increasing. Such is the nature of the upward leg of the house price cycle which is only three months old. For young buyers the wide window of opportunity to make a purchase with little competition and vendors willing to accept offers with many conditions is closing rapidly.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
