House prices are on the upswing

Guest Post by Tony Alexander

Last week REINZ released their latest data on the state of the NZ residential real estate market. What they tell us is that prices are rising, sales weakened a bit probably because of the general election, and houses are selling at a faster pace.

On average around the country in October house prices rose by 1.1%. This means that since the bottom of the cycle in May this year prices have risen by about 4%. Canterbury has gone up 4%, Wellington 4.5%, and Auckland 5.4%. The regions are lagging the price cycle and that is something I have noted as likely to happen when the uplift starts because of some post-pandemic population shift back to the cities.

But there are two other factors in play creating this difference between the cities and the regions

First, there is a migration boom underway which has boosted the country’s population by 2.3% in the past year. The net extra 119,000 people will largely have gone to Auckland with some spillover to the other two big cities.

Second, the El Nino weather pattern will further depress farm incomes on the east coast of both islands where growers are already suffering from reduced demand out of China and therefore lower export returns. Farmers have already closed their wallets and that implies greater employment and business weakness in the regions than the cities with resulting impacts on housing demand.

Sales of properties in October were 8% stronger than a year ago but down in seasonally adjusted terms some 10% or so from September. This likely reflects people holding back because of the election and some effect may also be there for November given the length of time taken to form what hopefully will be a stable coalition.

The average number of days taken to sell a dwelling in October was 37. This was down from 40 in September and 44 days a year earlier. The 37 days is the lowest since March 2022 but above the 29 days taken late in 2021 just before the credit crunch struck over October and November that year.

Banks have raised their mortgage interest rates further recently despite falling funding costs

They are boosting margins in an environment of low voluntary competition involving no spring mortgage campaigns. For that reason and because a country of tired, stressed, triggered people may simply jump from election stagnation to Christmas relaxation, we could easily see some continued calming of the real estate market over the summer period.

But come February we are likely to see a few things come together to boost sales and keep prices rising

We will have confirmation of changes in the tax regime facing investors and that is likely to see more investors stepping forward to buy. Interest rates are likely to be falling though an actual cut to the official cash rate may not come until after the middle of the year.

There is likely to be greater awareness of the decline in house construction alongside greater understanding of what the net migration boom of 119,000 people in the past year will do to rents and eventually house prices.

Unless the world falls over in some manner or we get another bad inflation surprise as happened on October 18 last year, the chances are firm that rising demand will run into falling supply in the housing market through 2024 and produce further rises in house prices.

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