NZ housing market bottoming out – economist

Independent economist Tony Alexander (pictured above) said the New Zealand property market was bottoming out and predicted house prices to increase this year and the next.

“In seasonally adjusted terms, sales have improved about 19% in the past three months, though history suggests this bounce up from the bottom should not be extrapolated,” Alexander said. “Such bounces do not last. Also, average prices have been flat for each of the past three months, again in seasonally adjusted terms.”

But while sales and prices can be reasonably said to have stopped falling in the past two to three months, “saying they are rising is different,” he said.

Alexander cited seven reasons why the downward leg of the cycle was ending:

• Banks have been easing their lending criteria, assisted by the Reserve Bank easing LVR rules and CCCFA regulation changes.
• House prices, on average, are down by more than 18% from their peaks, yet people have jobs and their wages have increased an average 17% since early-2020.
• Rents continue to rise.
• More buyers are looking to buy existing properties, due to stories of people losing their deposits on some new-build projects and because of soaring construction costs.
• There is a surge in net migration pressuring the rental sector as well as a rising awareness of the boom and how such surges in the past have affected the housing market.
• There is a view that interest rates have peaked, enabling buyers to see their worst-case scenario for financing costs.
• More than 200,000 migrants are in the process of having their temporary work visas transitioned to residency visas, which in turn, provides them the right to buy a dwelling.

Alexander predicted average house prices to lift by 5% this year and then by 10% the next year. The increase in house prices will likely be driven by the following factors:

• record net migration inflows (ignoring the initial pandemic surge)
• increasing rents
• rising income and saved deposits
• easing lending criteria imposed by banks, the Reserve Bank, and the government
• possible change in government in October and the reintroduction of tax rules encouraging provision of rental accommodation
• rising tourist inflows, which will lead investors to switch to servicing foreigners rather than providing long-term accommodation
• declining volumes of new house construction, as people increasingly switch to buying existing properties, due to a flow of stories of builder collapses and buyer loss of deposits
• activation of a queue of delaying buyers building up since early-2021

Restraining the pace of price rises, Alexander said, would be rising unemployment, though probably not above a 5% rate, as well as the slow decline of interest rates.

Click here to access the complete report, titled A housing market primer.

Use the comment section below to tell us how you felt about this.