House price falls are slowing

Guest post by Tony Alexander

Two or three months ago I wrote that the downward phase in the residential real estate market cycle in New Zealand was entering its endgame. This is a situation where the market is still weakening but the pace with which it is going down is showing signs of easing.

I cited the results from my monthly survey of mortgage managers and more recently my survey also of residential real estate agents. I will have an update on the first survey in a few days time, but it is worth noting in the meanwhile that the return of first home buyers noted in the previous two surveys appears to be continuing.

This week we received data from the REINZ also showing that the endgame is underway. On average around the country in September house prices as measured by the REINZ’s house price index fell by 0.7%. We can unequivocally say that house prices are going down.

However, this was the smallest monthly decline since a small 0.5% rise in prices in February. In both July and August average house prices around New Zealand fell by 1.3% after declining by 2.1% in June, 1.5% in May, 2% in April, and 2.1% in March.

The pace of decline in house prices is slowing. We can also see things changing when we look at sales of residential property around the country. We can make adjustments for seasonal factors, which clearly at this time of the year means a rise in activity because of spring and see what is happening with the underlying level of sales.

Doing that we can see that during the September quarter the seasonally adjusted volume of residential sales around the country rose by a small 1%. This followed an 8% decline in the June quarter and 24% decline in the March quarter when the credit crunch was at its worst.

Can we say that sales are now rising?

I feel hesitant to make such a claim as yet given the upside risk to interest rates stemming from developments overseas along with the continuing increase in the cost of living for the average Kiwi family. But I think it is safe to say that the period of worst decline in real estate sales now lies in the past and maybe for the moment things have stabilised.

The data mean that I am sticking with my view that house prices will bottom out sometime around the turning of the year with small price rises likely to be recorded on average for the country over 2023.

Of course, for any individual region the pattern could be a bit different.

Another set of numbers released this week and worth noting came from Statistics New Zealand. They show that in the year to August there was a loss of Kiwis overseas of just over 10,000. This compares with a gain of 9,000 a year ago and is the worst result since the middle of 2014.

Thankfully, we are seeing an increasing number of foreigners starting to come into the country, and the net flow has fallen from a loss of 17,000 a year ago to only 600 in the past year. When we add all the numbers together, we get a net loss to our population for the year to August of about 11,000 people.

There are signs that the deterioration in this overall net flow could be easing.

But these are early days yet for migration flows in a post pandemic world. The easiest thing to say is that migration flows are still acting as an overall drag on the housing market especially when we consider that many of the people leaving will be either selling houses or were in a position to make a purchase, whereas many of those coming in will have no legal right to buy a property. Hence my continuing caution for the moment about talking of an actual upturn in the real estate market.

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