Praneeta Mahajan
Hamilton, February 15, 2024
2024 started slowly but promisingly for the housing market, the chief executive of the Real Estate Institute said in a report recently.
New Zealand saw house prices lift 1% month on month (mom) and a promising 2.2% increase in a year-on-year (yoy) comparison in January according to data released from REINZ this week.
How different cities performed
A 1.2% lift in Auckland helped power the trend, though most large regions experienced positive house price growth, including Wellington (+0.8% mom), Canterbury (+0.4% mom), the Waikato (+1.1% mom), and Otago (+0.7% mom).
This is the largest monthly house price lift since November 2021, and thus the most substantial of the current recovery. That comes off the back of a bit of a pause for breath for the market over the last six months, with prices undergoing either small lifts or tiny falls amid the uncertainty of the election campaign and a mixed set of underlying drivers.
Housing confidence positive
New Zealand has experienced record-high net migration at a time when the outlook for housing supply looks to have stabilised. Housing Confidence surveys by ASB show that increasing numbers of Kiwis think that prices are past their lows and a plurality now think it is a ‘good’ time to buy.
But the mortgage rates remain in deeply restrictive territory (despite recent cuts for some tenors by some lenders) and a soggy economic backdrop will be keeping prospective buyers cautious about taking on such a chunky investment in this kind of climate.
Nick Tuffley, Chief Economist for ASB Bank said, “For our part, we do expect the housing market recovery to continue strengthening over the course of 2024, but not quite reaching the spicy upswing we saw in 2020-21. The balance between housing supply and population growth should remain fairly supportive for prices in the near term.”
“While net migration may be at its peak, the risk is that inflows remain high (more than 100,000 on an annual basis) for some months to come. Meanwhile, there has been a substantial decline in new residential building consents, suggesting less new supply coming onto the market in the near future.
What the numbers say
The number of sales nationwide (excluding Auckland) was up 16% in January compared to January 2023.
Jen Baird, CEO of REINZ said, “The biggest increases in listings compared with the previous month were seen in Wellington at 148%, followed by Gisborne at 84%, Canterbury at 81%, and Auckland at 76.8%.”
“However most regions are reporting more buyer activity across the board, with some seeing a particular surge in first-home buyer interest. Vendors are also being confident but realistic with prices as activity increases over the summer months. This is likely to resolve in inventory moving over the coming more active months in the year,” she said.
The price drivers
In regards to the projections for the year ahead, a report by ASB states, “The four fundamental house price drivers are what we term the four ‘I’s: – immigration, inventory, interest rates and instinct.”
“Inventory is the key supply influence, while immigration and interest rates are the demand drivers that chiefly determine how many buyers there are out there (given immigration is the main source of the country’s population growth) and how easily they can afford to service a mortgage.”
“Instinct or ‘gut feel’ then dictates how prospective buyers and sellers respond to those other factors. The housing market’s muted recovery over the last twelve months or so has chiefly been because three of those ‘I’s have been supportive for prices, but the fourth has been a powerful cooling influence,” stated the report.
Upwards and Onwards
The buyers’ outlook and many complementing factors do seem to predict a movement which is upward, making it a good time to buy and invest in Real Estate.
Mr Tufley said, “Our next Housing Confidence survey will not be out for another month or so, but we expect it to show an increasing number of respondents becoming bullish on the outlook. But the mortgage rates are set to remain high for a while yet, so we are not expecting the RBNZ to increase the OCR further at coming meetings, but it will be wary of the resilience in some inflationary pressures and err on the side of keeping things tight for longer.”
The report by ASB does not envisage OCR cuts happening until the second half of the year, or possibly even early 2025, if inflation news remains worrisome. Further heating in the housing market will support the case for keeping monetary policy tighter for longer (lest consumer spending or construction activity start adding too much to aggregate demand), though the RBNZ has other tools in its toolkit this time around. “We think that is a recipe for house prices to lift 7-8% or so over the course of the year, rather than the 25-30% annual gains they managed during the last upswing,” stated the report.
Praneeta Mahajan is an Indian Newslink reporter based in Hamilton.
