Market strengthening continues

Guest Post by Tony Alexander

Every month since the first lockdown in 2020 I have run a survey of real estate agents located all around the country to get their insights into what is happening in the housing market right now. This is just one of five monthly surveys I run, but it’s probably the most important one when it comes to housing.

Early this year the survey told us that first home buyers were solidly back in the market and that the scene was being set for prices to bottom out and turnover to rise. In January a net 3% of real estate agents said that they were seeing fewer young buyers. But in February this rose to a net 22% seeing more. In May the reading was 55% and it has just hit a record 66%.

Young buyers are being encouraged by lower house prices, greater listings numbers, higher deposits after 2-3 years of holding back from buying, a view that interest rates have about peaked, and a strong labour market bringing rising wages and high job security.

Because young people buy in the lower-price range in all locations and investors do the same, we need to keep an eye on what investors are doing if we are to get insight into perhaps whether the young buyers should accelerate their purchases or not.

My latest survey shows that there are exactly the same number of agents seeing more investors as seeing fewer. A net 0% in other words. That might sound comforting to other buyers until one realises that three months ago a net 18% of agents were seeing fewer investors, and in January this reading was 55%.

Investors have stopped backing away from the market – but they are not yet active purchasers.

Feedback from agents shows that many struggle to make the numbers work with interest rates at current levels. Also, although the political polls suggest a rising probability of a change in government come October and therefore restoration of interest expense deductibility, most are waiting for the election outcome before acting.

One interesting development in my agent survey is a fall in the proportion saying that buyers are worried about prices falling after they make a purchase. That proportion is now just 20% compared with 67% at the start of the year and a three-plus year average of 43%. Fears of price falls are now running at below average levels.

But fears of a shortage of listings are doing the opposite.

My survey shows that as at the very end of August 54% of agents felt buyers were worried about a shortage of listings. The January reading was only 9%. This is the highest reading since October 2021 and the average is 43%. Listings worries are now above average.

Altogether, every one of the measures in my monthly agent survey shows strengthening activity in the housing market or points towards upward pressure coming along on sales and prices. For buyers the message from this survey and some of my others has been clear since February. The market is turning (now has turned) even though interest rates have continued to rise slightly, the unemployment rate has risen from 3.2% to 3.6%, we have been in recession and may re-enter that state later this year, and political uncertainty is high.

So what does 2024 have in store for us?

Next year will bring falling interest rates (timing is very uncertain however), still strong population growth, falling new house construction, and declining stocks of listings. The pricing implications remain as obvious now as they have been since February. For the record, so far Auckland prices have risen 1.8% off their lows while the rest of the country is ahead 0.5%.

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