The housing market has bottomed out — so what's in store for 2024?

Guest Post from Tony Alexander

Over the past fortnight we have received further information telling us that the housing market has bottomed out. But we do not have any insight into the likely strength of the price and sales upturn as yet, and history tells us that picking such things is a fool’s game at the best of times, let alone in the current unique post-pandemic environment.

Data from REINZ show that after adjusting for seasonal factors, the number of dwellings sold around the country in the June quarter was ahead almost 20% from the March quarter. We shouldn’t expect this rate of growth to continue, and it is best interpreted largely as the market moving away from the bottom with most of the driving force coming from first home buyers entering the market.

There is no evidence that investors have re-entered the market yet.

That said, some purchases have been made by those not relying on debt and those who have been investing over a number of decades already. They are familiar with cycles and the way prices can overshoot on the upturns and the downturns and will not have been waiting for the bottom to be confirmed before picking up some good stock.

I can tell from my monthly Spending Plans Survey that owner-occupiers are not yet stepping forward in numbers to buy then sell or sell then buy. But there are early indications of a few who are thinking about it. A key characteristic of the housing market is that most people can pick the time for when they make their purchase. Only a few have timing determined by things like marriage breakdowns, changing jobs and cities, unexpected medical events, etc.

Data from realestate.co.nz show that although the number of properties listed for sale at the end of June was well above mid-2021 levels of close to 14,000 at almost 26,000, numbers have fallen 14% over the past six months. Experience shows that when sales rise, more vendors appear. But their numbers get swamped by the return of buyers, and stocks could fall relatively quickly once things get moving more strongly through 2024.

REINZ also reported that prices nationwide, with seasonal adjustment again, rose 0.7% in June after sitting flat in the previous two months. Again, it would be unwise to extrapolate this one month gain for the rest of the year and we could easily get another month when prices decline.

But the data from REINZ, along with almost all of the readings from my surveys of real estate agents and mortgage advisers, tell us that the nationwide market hit its low point around about March. That is 1-2 months later than the agreed bottoms seen for Australia and Canada.

The upcoming general election on October 14 is likely to keep many buyers out of the market.

And fixed mortgage interest rates are unlikely to show any meaningful decline until very late in the year. So, for 2023, while I expect price rises on average approaching 5% led by Auckland, it is 2024 that is shaping up to be the more interesting time period.

Next year interest rates will be falling, and people will become aware of a fairly sharp decline in house construction.

The lagged effects on rents from booming net migration inflows will be felt, and as the rental market faces pressure, there will be a translation through to higher selling prices. Banks are slowly easing their lending criteria with more likely to happen in 2024, and foreign students are returning.

The increased numbers of foreign tourists will see some rental stock go back into short-term accommodation. And finally, if we get a change in government as the polls are suggesting, we can expect investors to return as they get accorded the same right to deduct interest expenses from income for tax assessment purposes as every other business in the country.

My current pick for 2024 is average price gains around 10% — but uncertainties are high along with the risk of looking foolish!

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