ANALYSIS: New Zealand house prices rose on average by 0.9% per month between July and November 2023, according to the Real Estate Institute of New Zealand’s house price index. Since then, prices have fallen on average by 0.3% per month, and all the housing-related indicators I gather from my monthly surveys point to continuing deterioration in the residential real estate market.
Most recently, my Spending Plans Survey showed a net 10% of respondents were delaying or halting plans to buy a house. This is the second weakest result on record and compares with a net 4% stepping back from the market at the start of the year.
Not surprisingly, real estate agents are noticing a drop in first-home buyer activity. The proportion of agents who have seen more first-home buyers planning to make a purchase has fallen from a net 55% positive at the start of the year to a 16-month low of just 5% at the end of May.
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Young buyers are pulling back and I feel this is due to increasing insecurity in the job market, especially among those who have not seen a weak labour market before. Or, if they have, the Reserve Bank and government were stepping in to boost things for them. But no one is there to help this time around and forecasts that the unemployment rate will soon rise from 4.3% to above 5% are scaring people away from the biggest financial decision of their lives so far.
But it is not just young buyers who are stepping back. Investors, too, have retreated further into the hills they have been hiding in since the end of March 2021.
A net 19% of respondents to my Spending Plans Survey said they were shelving thoughts of buying an investment property, up from a net 9% at the start of the year.
Independent economist Tony Alexander: "When do I think things will improve? Not until interest rates fall away." Photo / Fiona Goodall
And a net 25% of real estate agents are now saying they are seeing fewer investors looking to make a housing purchase, in contrast to the net 22% of agents at the start of the year who said they were seeing more investor buyers.
The real estate market has cooled since the surge in sales and prices around the middle of last year. Job worries have grown, a new flood of vendors hit the market in the New Year, and the overall outlook for the economy has deteriorated amidst new unavoidable cost of living surges, including higher council rates and insurance premiums.
When do I think things will improve? Not until interest rates fall away. When might that happen? Late this year, when the Reserve Bank acknowledges that its monetary policy settings are now too tight (a reversal of 2021-2022 when they were much too loose). If you’re losing your business or job this year, the chances are it’s because of the central bank’s misreading of the economy in 2021 in particular. Or you’re a public servant affected by the inevitable consequences of the debt blowout from 2017-23.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
