In media commentary recently a number of people have ventured the opinion that we are headed towards a buyer’s market in residential real estate. This is a situation where buyer’s have greater power on average in negotiations than sellers. Actually, we are already there.
In April 2020, I began a number of surveys aimed at gauging coalface insights into what was happening with household spending and the housing market in particular.
In the new survey of real estate agents I asked agents all around the country whether they felt that buyers were more motivated to get a deal over the line or if sellers were the anxious party. A net 27% said that the buyers were most concerned about getting pen to paper, meaning that we were in a seller’s market.
Now, according to my latest survey of real estate agents, a net 8% say that it is the sellers who feel most antsy. Buyers now have the upper hand – provided of course that they can get finance now denied to so many by the Government’s changes to the Credit Contracts and Consumer Finance Act (what was the Government thinking?).
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I ask agents if they are noticing more or fewer first home buyers in the market. Back in April 2020 a net 4% said they were seeing more first home buyers, and that reading soared to 55% just one month later once we emerged from the first nationwide lockdown. In my latest survey a net 65% of agents say that they are seeing fewer first home buyers.
A net 56% also said they are seeing fewer investors. But the big change there happened in April last year after the tax changes were announced.
I also can garner from my survey the only measure of FOMO available in New Zealand. The gross proportion of agents saying that they can see a fear of missing out on the part of buyers was 35% in April 2020. That proportion sat around 70% to 90% between July 2020 and March 2021, fluctuated slightly for the rest of 2021, but now sits at a record low of just 21%. FOMO has essentially disappeared.
It is being replaced by FOOP – fear of over-paying. I ask agents what the main concerns of buyers are. In the latest survey 41% said buyers are worried that immediately after buying prices might fall. Three months ago that was just 19%. In April 2020 it was 55% - thus showing buyers back then were as bad at predicting house price changes as us economists.
Independent economist Tony Alexander: “Buyers now have the upper hand – provided of course that they can get finance.” Photo / Fiona Goodall
Which brings us in fact to what prices are doing. Back in April 2020 when we were all expecting price falls and deeply worried about soaring unemployment, a net 17% of agents said that in their locations prices were in fact falling. That quickly shifted to large proportions saying prices were rising for all subsequent months – except late last month.
A net 16% of agents in my late-January survey said that prices are declining in their area of operations. That is – things seem to be as bad as they were back then.
These insights can tell us what is happening with the residential real estate market well before you’ll gain insights from the other generally very good, but behind in time data from numerous other agencies. And that brings me to something quite important as we all talk about high inflation and the way interest rates are rising. Be careful when listening to predictions that interest rates will soar, and house prices fall precipitously.
The Reserve Bank raises interest rates not to target house prices but to get inflation down by crunching consumer spending. The other survey I mentioned above looking at consumer spending plans shows that you and I are already pulling back on our spending. A net 10% of the near 1,000 people who have so far replied in my first Spending Plans Survey for 2022 are saying they plan cutting their retail spending in the next 3-6 months.
There will definitely be an Omicron effect running through, and the results won’t stop a monetary policy tightening on February 23. But the results are the weakest on record, and supply chain effects on inflation aside, something the Reserve Bank needs to happen to get middle of the range inflation in 18 months time is actually already underway – a household spending pullback. I’ll write more on this next week. Meantime, watch for some downward revisions to forecasts of the pace of growth in our economy over the coming year.
- Tony Alexander is an economics commentator and former chief economist for BNZ. Additional commentary from him can be found at www.tonyalexander.nz
