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Buyers’ market at full throttle

Buyers in the housing market are in full ascendency. They now have the greatest power and can add conditions to an offer and throw in low bids, writes Sally Lindsay.

By: Sally Lindsay

12 May 2024

Helping them is the high availability of listings. The number of properties available for sale has risen 23 per cent over the past nine months to sit at a nine-year high of 30,400 units.

Independent economist Tony Alexander says there are several reasons for the strong buyers’ market.

Buyers are more worried about their incomes than at any other time during the four-year period of his monthly survey. A net 50 per cent of real estate agents report job concerns amongst potential buyers. The average for this measure is 16 per cent; only three months ago the reading was 14 per cent.

Alexander says this has been the key change in the economy since the start of the year.

“People, and especially young ones who have known nothing other than strong employment conditions, are shocked by the reports of layoffs. I use the word shock because in reality the overwhelming majority of people are not affected. The unemployment rate only sits at 4.3 per cent, which is well below the three-decade average of 5.3.”

Jobs growth essentially stopped in the middle of last year and the long-running ability of people to pick and choose jobs has ended. And the ability to tell a current boss or a potential new one how many days you plan to work from home is eroding.

The downturn in employment will be good for the educational sector as many young people will do what they have always done in the past when economic conditions are tough – use the time to get extra qualifications.

Jobs worry

In the housing market buyers can pick and choose amongst many listings, but many are not doing any of that because they are worried about their jobs.

“They are now out of the market until things look better. But things are looking worse, and we can see that in the ANZ Roy Morgan Consumer Confidence Survey.”

On average their sentiment reading sits at 112. It hit 74 at the end of 2022, then recovered to 95 this February. It’s now down at 82. “People are scared and shocked into their shells.”

From his own business experience, Alexander says people have closed up shop. He has never seen the email flow as low as it is now; people have stopped making enquiries and requests for presentations have collapsed.

For businesses it’s not just lower than expected sales. “Like households they have probably used up cash reserves built up during the pandemic when the government went on an irresponsible spending spree. They are also having to deal with the IRD, which is catching up on delayed tax obligations having taken a light hand for a few years because of pandemic stresses.

“Psychologically, everyone is being shocked by soaring bills for council rates – using their monopoly powers as monopolists always do – and insurance.”

There is also a widespread and increasingly greater than expected downturn in house construction as potential buyers back away from new builds for a variety of reasons. Many developers and builders are closing or slimming down.

Statistics NZ’s latest figures show the number of new building consents fell 26 per cent in the March year, with the annual total now at 35,200 from 36,300 a month ago, 40,400 six months ago and 46,900 a year back.

Alexander says those statistics are headed for an annual number below 30,000 before things bottom out and an upturn appears boosted by firm population growth and, eventually, falling interest rates.

Mortgage rates

Monetary policy has a big part to play and Alexander’s long-running view regarding that policy is that just as the Reserve Bank over-loosened during the pandemic and later over-tightened, at some point it will cut interest rates rapidly and his best guess for that is just before the end of this year.

“Before then the RBNZ will hold out with minimal comment for as long as it can with good justification for doing so because of one central thing. 

“Until businesses realise that despite their costs jumping 10 per cent, they can only raise prices two per cent and must find savings and boost productivity; monetary policy will not be eased.”

He says householders, particularly those with mortgages, are doing their part in drastically cutting back spending. The central government is as well. Councils are not and neither yet are businesses. “The ball essentially is in their court. Customer demand won’t come back until they give in.”

The longer businesses take the worse the end-game period for monetary policy tightening will be, Alexander says.

“It takes 18 to 24 months for tight monetary policy to have its greatest impact on inflation. Householders might think that because the first cash rate increase came in October 2021 that we should see falling interest rates now because 31 months have passed since then.

“But the initial rate rises were only 0.25 per cent and we did not get the 0.75 per cent jump and warning from the Reserve Bank of recession until November 2022. In May 2024 we are only 18 months along from that shock tightening.

“It’s going to be a challenging winter for many businesses.”

Mortgage holders, he says, might think their only hope of an early policy easing from the RBNZ will be if the government delivers extra tightening of fiscal policy in the May 30 Budget.

But with tax cuts planned that is unlikely and even if the government did radically tighten things up the early interest rate falls will only go to offset the new source of downward pressure on the economy.

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