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Lift in House Sales, but Market Still at a Low Ebb

At least one senior economist predicts softness in the housing market will gradually give way to stronger activity over the coming year and is forecasting prices will rise about 8 per cent.

By: Sally Lindsay

20 December 2023

Gisborne has had a 75 per cent increase in the number of listings coming to market this month compared to last month.

While the Real Estate Institute of New Zealand’s November data shows a solid increase in sales, up by 15.7 per cent, from 5,550 to 6,422, month-on-month, and up by 12.2 per cent, from 5,724 to 6,422, compared to November last year, the number was the lowest for a November month since 2011.

Apart from November last year, last month’s sales were below 7,000 for a November month since 2013.

Westpac senior economist Satish Ranchhod says the big question is how enduring softness in the housing market will be?

The bank expects high interest rates will continue to be a brake on house price growth for some time yet. “That’s made serviceability tougher for first home buyers and those looking to upgrade,” he says.

“It also means that net rental yields are still low. Given the persistence in domestic inflation, we expect the RBNZ will keep the OCR at contractionary levels over the year ahead.” 

However, Ranchhod expects softness in the housing market will gradually give way to a period of stronger activity over the coming year and is forecasting prices will rise by close to 8 per cent.

“Population growth is booming, with net migration rising to a record high of 129,000 in the year to October. Consistent with that, real estate agents are reporting a pick-up in buyer interest. In addition, the new government plans to introduce policies that will help boost investor demand, such as fully restoring interest rates deductibility and reducing the bright-line holding period for taxing gains.”

Stretched budgets

However, Kiwibank is expecting to see a shallow recession next year which will feel worse than migrant-inflated figures suggest. “On a per capita (per person) basis, we are likely to record a prolonged contraction,” says the bank’s chief economist, Jarrod Kerr.

Household budgets are being stretched, and businesses now worry more about demand for their product or service, as well as costs, he says. “On top of the rapid rise in interest rates, high rates of inflation have slashed household purchasing power, and falling house prices have dented confidence and the ‘wealth effect’.

“But it’s not all bad news … fortunately, the tight labour market has helped cushion the blow of the housing market downturn. And the surge in migration has led to an earlier-than-expected end to the correction.”

House prices have fallen back to early-2021 levels, recording a 17 per cent peak-to-trough decline, and there are tentative signs of recovery.

“Sales activity is picking up, and the number of ‘days to sell’ is reducing. We expect house prices to continue recording gains, but at a relatively modest amount of 6 per cent.

“The migration boom and the new government’s promise of a reversal to a few property rules, such as interest deductibility, the bright-line test and CCCFA rules, are significant tailwinds to consider. However, the market continues to face the steepest interest rates in 15 years – with risk of lifting further – and a forecast rise in unemployment. Such headwinds will likely cap any house price gains in 2024,” Kerr says.

REINZ figures show for New Zealand, excluding Auckland, the total number of properties sold has followed a similar pattern, increasing 17 per cent month-on-month and increasing 12.2 per cent year-on-year.

Across the regions, data shows only three of the 16 have a drop in the number of properties sold month-on-month: West Coast -5.6 per cent; Taranaki -2.1 per cent and Otago -0.3 per cent. Only two had declines year-on-year: Nelson -16.9 per cent; and West Coast -2.9 per cent.

Comparatively, Nelson was also the region with the biggest increase month-on-month for November, with a 51.3 per cent rise, followed by Tasman at 32.8 per cent and Wellington at 31.1 per cent.

Median sale prices

The national median sale price rose slightly, increasing by $1,000 to $790,000. Year-on-year, there is a slight national decrease of 2 per cent from $806,000, while NZ, excluding Auckland, is down by 1.4 per cent to $700,000 from $710,000.

Median sale prices are still mixed, with half of the regions’ houses rising by up to 3.1 per cent month-on-month. The remaining regions had a drop in the median sale price, albeit at less than 4 per cent. The West Coast stood out from the other regions with a 17.4 per cent increase month-on-month to $399,500 from $340,000.

Days to sell have remained the same this month at 38 compared with last month and dropped year-on-year by three days from 41. Regionally, the West Coast again saw a decline of 22 days, with Nelson close behind with a 17-day drop in median days to sell month-on-month.

At the end of November, the total number of properties available for sale was 28,014, down 1.5 per cent or 435 properties, from 28,449 year-on-year, and up 9.4 per cent month-on-month. For NZ, excluding Auckland, inventory increased marginally by 113 properties, or 0.6 per cent year-on-year from 17,579 to 17,692, and increased 9.8 per cent month-on-month.

Nationally, new listings increased 5.2 per cent from 10,185 to 10,712 year-on-year and increased 12.4 per cent month-on-month. NZ, excluding Auckland, also had an increase month-on-month of 12.9 per cent and year-on-year of 2.5 per cent.

Listings up

There has been a big rise in the number of listings coming to market this month compared to last month. Notably, Gisborne with a 75 per cent increase, and Manawatu-Whanganui, Wellington and Nelson all reaching increases in the mid-20 per cent range. Year-on-year numbers remained mixed.

The House Price Index (HPI) stood at 3,686, showing a 0.8 per cent increase compared to October. However, when compared to the same period last year, the HPI reflects a 0.2 per cent decline. The average annual growth in the NZ HPI over the past five years has been 6.1 per cent per annum. It remains 13.8 per cent below the peak of the market in 2021.

REINZ chief executive Jen Baird says November continues the trend of slow and steady improvement in property market activity now the country is past the election, and it heads into more active months in the property cycle.

“Local agents are reporting steady activity across different buyer groups, with more competition for buyers’ attention in areas where listings have increased. With median prices either largely unchanged or slightly lower year-on-year in a number of regions, for some buyers now will be the time to act.”

She says REINZ anticipates seeing a resurgence of activity from the end of January as the boost in market positivity helps raise confidence further.

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