ANALYSIS: There is general acceptance among analysts that New Zealand house prices have been in decline over autumn and winter. According to data from the Real Estate Institute of New Zealand, the nationwide drop totals 2.5%. There is some regional variation, though: the drops in Auckland and Wellington are close to 4%, but only 1.5% in Canterbury.
Sales over the same period are up, so why are prices so weak? One key reason is job insecurity. At the start of 2024, only 14% of agents said buyers were worried about their jobs. That jumped to 56% in June last year and is running at 53%, according to my monthly survey of real estate agents, which I run with sponsorship from NZHL.
There is also awareness by many that population growth is running at below normal levels, courtesy of weak net immigration. Plenty of Kiwis are heading offshore – especially to Australia. In my monthly survey of property investors with Crockers Property Management, concerns about weak migration rank almost as highly as worries about maintenance costs (insurance and council rates dominate the list of concerns).
The number of homes for sale remains high, and buyers feel they have time is on their side. A net 26% of agents, in fact, feel that the country remains solidly in a buyer’s market.
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This measure and most others in my monthly agent survey have shown some improvement from last month. A net 55% of agents, for instance, say that they are seeing more first-home buyers in the market compared with 42% in August. A net 14% say they are seeing more investors compared with only a net 3% last month.
But it could be that the improvements in the survey readings are simply seasonal. When spring arrives, the real estate market tends to improve. Vendors enter the market expecting more buyers, and buyers expect more fresh stock.
In theory, the market is likely to improve over the summer. This will be because of a lagged response to falling interest rates, plus expectations of higher incomes for many people through 2026 due to lower borrowing costs and stronger farm incomes.
Independent economist Tony Alexander: "The number of homes for sale remains high, and buyers feel they have time is on their side." Photo / Fiona Goodall
But will prices engage in much upward movement? Possibly not, though an expectation of an average 5% gain for 2026 seems reasonable considering the interest rates effect. Restraint is still likely to come from low feelings of job security until well into next year.
Restraint will also come from the continuing firm number of consents being issued for new dwellings to be constructed. Data this past week from Statistics NZ tell us that consents are continuing to track at an annualised total near 34,000 - as they have been doing since exactly two years ago. The pullback from a peak annual number of 51,000 in mid-2022 may sound like a lot, but the total when compared with population is still at the half-century average of almost 0.65%.
Good supply growth is a key change in the dynamics of our housing market. More supply in the absence of much fresh extra demand will tend to push prices down, as we have seen this year. As demand rises, things will become better balanced. But unless house supply turns down again, price gains will be limited.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
