ANALYSIS: The Real Estate Institute of New Zealand just released its sales and house price figures for June. If you want to see what the underlying trend is in the market, then REINZ’s House Price Index is the place to go.
Unfortunately, the trend is no friend to sellers right now because prices are falling. In June, house prices nationwide dropped by 0.8% after declines of almost 0.4% in May, 0.3% in April, and 0.6% in March. That’s four house price drops in a row now.
The weakness in the market is greater than I anticipated, so why are house prices trending down again? Partly it is because the economy is weak, with business margins tight, job security low, household costs increasing (rates etc), new-build townhouses in abundance, and net migration weak.
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The migration flows are much weaker than most of us expected, with the annual gain now 15,000 compared with 24,000 at the end of 2024 and 80,000 a year ago. The net loss to Australia was 30,000 in 2024, and if we had data for the year to May, it would be reported as even higher.
This net loss across the Tasman is the greatest since 2012, when the flow was about -40,000. But back then our unemployment rate was hitting 6.7%. Now it is only 5.1%. That tells us that there may have been a structural shift in the propensity of Kiwis to leave or not come back when our labour market goes through a weak patch.
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The global environment is also a new source of risk and uncertainty attributable to the tariff tactics of the US president.
One factor pushing down prices has been growing buyer awareness of the large volume of properties for sale. Feelings of FOMO (fear of missing out) remain very low. First-home buyers are very active, and good on them for taking advantage of a favourable market.
Independent economist Tony Alexander: "One factor pushing down prices has been growing buyer awareness of the large volume of properties for sale." Photo / Fiona Goodall
But for investors, I can tell from the comments submitted in some of my surveys that there is increasing discontent at the lack of capital returns, rising costs and deepening difficulties in finding and keeping good tenants. The shoe is on the other foot – a huge shift in the balance of power from as recently as a year-and-a-half ago. More investors are looking to sell.
At the same time, more investors are looking to buy. But they are quite discerning, are motivated by hopes of achieving a bargain, and are likely to be paying far more attention to yields now that there is widespread acceptance that prices will not rise at the speed they did on average from 1992.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
