ANALYSIS: For the second time since the pandemic ended, the recovery in the housing market has stalled. The first post-pandemic recovery started in 2023 and was driven by first-home buyers responding to lower prices, income growth, high job security, plentiful listings, and little competition.
The reading of FOMO (fear of missing out), which I glean from my monthly survey of real estate agents with NZHL, rose from just 4% of agents seeing buyers displaying it at the start of 2023 to 40% by October.
But a wave of vendors combined with a collective extra 0.9% rise in mortgage rates produced some weakness, which turned into a rout in the first half of 2024 as the economy tanked. That is, the economy shrank 1.1% in the June and September quarters of last year as people reacted to the effects of: higher rates and insurance; loss of job security; the IRD chasing business tax debts; and new fears of another 0.5% tightening of monetary policy.
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The FOMO reading fell to a record low of just 1% come June last year. But everything changed in July when the Reserve Bank signalled interest rates would be cut. Business and consumer sentiment readings soared into late 2024, and FOMO recovered to 19%.
But now, my most recent agent survey conducted last week shows that only 6% of agents feel buyers are worried about missing out. A net 9% say they are seeing fewer people attending auctions versus a net 27% late last year saying they were seeing more. A net 4% say fewer people are attending open homes, and a net 23% say that they feel house prices are now falling again in their areas of operation.
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Why has the housing recovery stalled again when mortgage rates have fallen 2% and sentiment levels are still above mid-2024 levels?
Partly, we can put it down to a reality check on people’s excessively optimistic expectations for what the removal of high interest rates would do to our economy, combined with uncertainty about what the new US president’s actions will do to world and New Zealand growth. But we can also put the new market weakness down to buyers realising the market is overwhelmingly in their favour and they don’t need to hurry.
Independent economist Tony Alexander: "Only 6% of agents feel buyers are worried about missing out." Photo / Fiona Goodall
We can see this in the number of properties for sale, with listings 7% higher than a year ago and more than twice the level of 2021. There is a well-recognised oversupply of townhouses in Auckland and Christchurch, yet the number of consents being issued for new dwellings remains unusually high.
There is also a wave of sales from older investors responding to hikes in the costs of running a rental property when finding good tenants is difficult, and some rents are falling.
In a nutshell, there are more willing sellers than willing buyers. Because of weakness in our economic recovery and turbulence offshore, buyers feel that both time and negotiating power are on their side. When might this change?
Probably when the economy is on a more solid growth track and that means 2026, or perhaps later this year. After all, just as there is an 18-24 month lag between monetary policy tightening and the true negative effects being felt, so too is there an 18-24 month lag between policy easing and things getting a lot better.
Given that the first Official Cash Rate cut happened in August last year, it may be reasonable to expect solid momentum for the economy and the housing market by early next year.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
