Experts analyse the lingering slump in NZ's housing market
Despite initial expectations of a pickup following the new government’s formation, January data has revealed a 9% drop in monthly sales from December, marking the lowest sales activity since March of the previous year.
CEO Brad Olsen and chief forecaster Gareth Kiernan (pictured above, from left to right) noted a continued downturn in activity post-election in the latest edition of Infometrics’ Econ Talks, where they delved into the current state of New Zealand’s real estate market.
Impact of mortgage rates and migration on the market
Kiernan highlighted that the momentum gained in the first half of 2023 has dwindled, with sales activity dipping to its lowest point in nearly a year.
“There is sort of extended weakness there and I think we’re getting to the point where it’s a bit hard to blame it on the election and post-election uncertainty,” he said.
Factors such as persistently high mortgage rates have played a substantial role in discouraging potential buyers, further exacerbated by a growing stock of listings and longer property market times, despite theoretically high demand driven by net migration.
“It’s interesting when you look at all of those different variables – the fact that you’ve obviously got more people who are wanting to sell,” Olsen said. “They’re listing more, so there’s more properties on the market. But fewer sales and taking longer means that… although sellers are keen, you just haven’t really got that buying pool or enough to the degree that you have had previously.
“And… you look at that sort of affordability issue, and you’ve got a lot of people who are sitting here going, ‘Gosh, I just can’t really get the money together.”
He noted that there was initially a lot of discussion suggesting that interest rates might decrease quickly, but that expectation has lessened recently. This change leads to concerns that if people are already finding it challenging to afford homes at current rates, any increase in interest rates could make buying a home even more difficult.
Additionally, the impact of increasing migration is first seen in the rental market rather than in home buying. This suggests there might be a delay before the demand from new migrants starts affecting the housing market, potentially increasing demand and prices later on.
A cautious outlook for 2024
Looking ahead, Kiernan predicts modest house price growth of 4% to 5% for 2024, noting a recovery in late 2023 but foreseeing limited growth due to market softness and affordability issues, alongside banks adjusting forecasts and interest rate expectations upwards.
Watch the latest edition of Infometrics’ Econ Talks below.
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