ANALYSIS: With the reopening of the Strait of Hormuz and falls in fuel prices, optimism about growth in the New Zealand economy has improved. At the same time, pessimism about interest rate movements has taken a step back, and maybe the Reserve Bank will hold off its first rate rise this cycle until September.
These things are likely to produce improvements in consumer and business sentiment readings, and I’ll have a gauge on the former in a few days. But what about in the housing market? Will the talk of better times ahead cause things to improve?
The answer is yes, but not necessarily right away. In fact, according to the results of my latest monthly survey of real estate agents with NZHL (just completed), buyers remain highly cautious.
A net 29% of agents nationwide reported seeing fewer people at open homes. This is better than the net 51% who reported seeing fewer people at open homes two months ago, but it isn't much of a change from last month's readings. So, the average buyer has yet to respond to the better outlook by going out to kick the tyres.
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In fact, a net 32% of agents said fewer people were attending auctions, up from a net 23% of agents who reported the same a month ago. The horrible weather may have played a part there, but the conclusion we can draw is clear. For now, the market remains quiet. I’ll release full results with NZHL in a few days.
I’ve also recently completed my monthly survey of residential property investors, and things haven’t shifted much there either.
Only 14% of respondents said they were thinking of buying another property in the coming year, up from a low of 11% recorded during the Iran war, but down from the 16% who affirmed yes before the conflict. So, interest in buying is low among established investors.
On the flip side, 34% of respondents said they were thinking of selling, which isn't much of a change from the 33% pre-invasion, but better than the 38% who gave the same answer a month ago.
Independent economist Tony Alexander: "Maybe the Reserve Bank will hold off its first rate rise this cycle until September." Photo / Fiona Goodall
So, for investors, there's perhaps been a mild pull-back from the brink now that the petrol price situation is improving and higher interest rates are a tad further out.
But the key driver of landlord behaviour hasn't really changed since late 2024: finding good tenants is difficult. A net 32% of landlords have said that it is hard to find a good tenant (their own personal definition). A year ago, that was 40%, two years ago, an even 0%, and three years ago, a net 10% said finding who they wanted was easy.
Is this likely to change in the near future? Maybe not this year, but probably through 2027. The net migration flow into New Zealand is improving, but at 23,000 in the past year, we are below the 46,000 ten-year average and only a bit up from 10,000 a year ago.
Come next year, perhaps some of the current oversupply of townhouses will have been soaked up, and that, combined with better population growth, may improve the ability of landlords to pick and choose.
Then again, a clear area of worry for investors is this year’s general election. Increasingly, they are concerned that the outcome could produce tougher rules in favour of tenants, plus the removal once again of the ability to deduct interest payments when calculating taxable net income. Until clarity is achieved on those sorts of areas, the buying interest of most investors is likely to remain on the low side for a while longer.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
