ANALYSIS: Average house prices around New Zealand staged a small recovery over the second half of last year as people felt joy over falling mortgage interest rates. But prices eased slightly over summer and more recently have been almost static, with the monthly gain averaging only 0.1%.
Why isn’t the market moving ahead despite mortgage rates falling below 5% from over 7%? One key factor in play is a lack of job security.
My monthly survey of real estate agents with NZHL has on average shown 21% of agents feel that buyers are concerned about their incomes. This measure was below average at 14% early in 2024 before blowing out to 56% in June. Now it's 51%.
If a prospective buyer is uncertain of their income, particularly in the early years of ownership, then they will be hesitant. Even if they're not worried, their bank will be, and is likely to be giving greater scrutiny to the probability of applicants losing their jobs than at other times in the economic cycle. Credit may be less available than buyers would like.
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A second factor in play for the moment is the increased selling of properties by investors. They have experienced large jumps in key costs, including insurance, rates, and maintenance. There are certainly many investors looking to buy, but lots are choosing to realise the value of their assets to fund their retirement, which is turning out to be a lot more expensive than they anticipated.
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Third in the list of factors restraining price rises for the moment is the ample supply of listings. The nationwide stock of properties for sale is the highest since 2015, sitting at around 33,000, more than double what was available in the middle of 2021.
In fact, the true volume of property owners who would willingly sell at the moment is probably more than 33,000. Many developers of townhouses have found themselves unable to sell their dwellings at the price point they would like, so they have placed some portion of that stock into the rental market.
This helps explain why landlords are having difficulty finding good tenants, now that tenants have a greater-than-usual number of properties to choose from.
Independent economist Tony Alexander: "Many vendors have yet to capitulate to the market reality of prices being considerably below 2021 levels." Photo / Fiona Goodall
Capping all these factors off is the general one that buyers feel time is on their side. FOMO is almost completely absent, and buyers are aware they have considerable negotiating power. But they also recognise that many vendors have yet to capitulate to the market reality of prices being considerably below 2021 levels.
This helps to explain one of the more interesting readings from my monthly real estate agent survey. FOOP – fear of over-paying – is being observed in buyers by 39% of agents. This is the highest proportion since June last year, before interest rates started to fall.
Until vendors start to accept market realities, buyers will feel there is a risk that they will be caught out by falling prices soon after buying.
The question then is this: Who blinks first? Given that there are huge numbers of young buyers taking advantage of the lack of competition and good choice, the answer is that it will be the vendors who have to adjust – unless the employment situation changes.
If job security suddenly and firmly improves, then expectations of better demand will make many vendors continue their reluctance to cut their asking price. What is the employment outlook? Still quite muted with the 5.1% unemployment rate likely to edge higher, and businesses increasingly looking for cost savings, including by trying to shed jobs through the use of AI.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
