ANALYSIS: Last week we had the Budget, today we had the OCR. Both are unlikely to substantially change the course of the housing market. On the Budget, the many attempts by some real estate agents to talk the market up by saying they had inside information regarding the Government removing the ban on foreign buying have been revealed as baseless.
On the OCR, the cut of 25 basis points was as expected, but the fact that the committee only discussed a 25-point cut and no change from 3.5% suggests scope for further cash rate reductions may be less than the markets have been factoring in.
For now, the housing outlook remains one of high supply of new and existing properties and buyers feeling no need at all to hurry and make a purchase.
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My five regular surveys of businesses, consumers, and various groups in the residential real estate sector point to ongoing challenges.
First, a net 18% of consumers say they intend to cut spending in the next 3-6 months versus a +10% result in December, so retailers should not anticipate good trading conditions in the months ahead. People are concerned about the many developments they are seeing around them, including weak jobs growth and a US-centred tariff war. Times look tough for operators in the hospitality sector for the rest of this year, and domestic travel operators may also be challenged.
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Second, businesses are hopeful of stronger revenue in the coming year and plan to invest in capital equipment. The 20% depreciation allowance contained in the Budget is likely to provide extra encouragement to boost productivity and capacity.
But businesses are disappointed with the country’s political climate, worried about whether customers really will show up as economic concerns continue, and still feel compliance costs are a drag on their operations.
Third, mortgage brokers are reporting that banks are becoming more willing to lend money for home purchases. But bank mortgage application processing times have become appallingly long and new enquiries about financing from first-home buyers and investors have slowed down.
Independent economist Tony Alexander: "The market is likely to remain dominated by first-time buyers until next year at least." Photo / Fiona Goodall
Fourth, real estate agents now say they are seeing fewer people showing up at auctions and open homes, that prices are generally falling around the country, and few new investors are entering the market.
They strongly feel that it is a buyer’s market throughout the country and knowing this there are very few of those buyers feeling FOMO – a fear of missing out. The results strongly tell us that the housing market for the moment has stalled and it is vendors who are going to have to change their stance if they want to get a transaction over the line – not the buyers who can pick and choose from almost the highest number of properties listed for sale since 2015.
Finally, residential property investors remain deeply concerned about rising costs and getting a good tenant has become extremely difficult. Investors are net sellers of property, not buyers, and fewer and fewer landlords feel that they can raise rents in the current climate.
Therein lies the trap for young buyers. The rental market is in their favour, so many may feel incentivised to keep renting for as long as possible. But with few other buyers competing to acquire property currently, this remains a very good time to make a purchase if one’s deposit and employment outlook are good enough to make it financially feasible.
Young buyers have been the key driving force in the housing market since the mild recovery started early in 2023 and remain so. At this stage, given that the bulk of mortgage rate declines this cycle have already happened and that investors are struggling to make cash flows work, the market is likely to remain dominated by first-time buyers until next year at least.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
