For the first time since November 2021, the REINZ House Price Index showed a month-on-month improvement between May and June. It was only a tiny improvement of 0.6%, but the change of direction is welcome. Hopefully this is a sign that prices have at least stopped falling, even if they’re not yet starting to rise again.
Zagga has seen a significant increase in loan enquiries from brokers after a more subdued start to the year. This suggests that developers and homebuyers are looking at the horizon with optimism and a bit more certainty. Combine that anecdotal evidence with the high migration rates, rising incomes and potentially falling interest rates in 2024, and it all adds up to a feeling of greater confidence in the housing market.
Interest rates may be peaking
Our official cash rate (OCR) stayed on hold at 5.5%, and with inflation at a slightly improved 6%, it is likely to stay there at least until the election. One economist is predicting a debate about cutting the OCR will dominate toward the end of the year and into 2024.
Right now, with banks stress testing loans at 9% or more, difficulty in securing lending remains a major handbrake on sales activity and prices. Lower interest rates, more than any other factor, will contribute to rising house prices. But rates are forecast to fall slowly when they do start falling, so the impact will be gradual, not dramatic.
October’s election could provide a kickstart
Traditionally, everyone sits on their hands in the lead-up to an election and this year looks to be no exception. Markets don’t like uncertainty. Once the election is over, deferred investment decisions are often made, and not only if the result goes a certain way.
We can probably expect to see a boost in investor confidence once the election is over, and this may translate into a livelier spring/summer housing market. If National wins, it plans to introduce (or reintroduce) policies that are friendlier to property investment, which may reinvigorate the landlord market.
Strong migration means Auckland is likely to move first
The Auckland housing market has seen one of the largest peak-to-trough price drops, down around 20%. However, it’s Auckland that will benefit the most from the unexpectedly high immigration we’ve seen in 2023. Although many Kiwis are leaving, the net inflow for the year ending May 2023 was 78,000.
Migrants tend to prefer to move to Auckland where the number of job listings is at its highest, which will put upwards pressure on rents and, ultimately, house prices. This may help Auckland house prices to rise first, leading the recovery for the rest of New Zealand.
One survey of real estate agents indicated that the tide is already turning in Auckland.
“Auckland is already back into a seller’s market with a net 4% of agents operating there saying that buyers are now the weaker party in negotiations,” wrote economist Tony Alexander in one of his recent economic updates. “Queenstown Lakes and Dunedin areas are in a seller’s market also.”
Rising house prices drive our economy
With higher incomes, strong immigration, lower interest rates and falling inflation, it’s probable that house prices will start to rise. This rise will probably be slow, but steady. Rising values give homeowners more confidence, leading to higher consumer spending and stimulating the whole economy. Whether the New Zealand economy should be so influenced by the housing market is a matter for debate, but for now it is – so its imminent recovery is good news for pulling Aotearoa out of its technical recession and boosting local businesses in 2024 and beyond.
You can’t time the market. But with house prices seemingly at a turning point, property looks well-priced. Once again, real estate seems ready to proves its credentials as an excellent long-term investment, even if the short-term volatility can make for a stressful ride along the way.