Housing cycle turns upward

On average in the three months ending in May average house prices throughout New Zealand fell by 1.0% a month. In the following three months to August the average decline was 0.3% with prices according to this particular REINZ measure unchanged in the month of August.

We can certainly see that lower borrowing costs are having an impact in the real estate market. Whereas three months ago at the end of June a net 35% of real estate agents around the country reported that they were seeing fewer people attending open homes, one month ago a net 42% were seeing more.

Expectations are universal that further declines will come through into 2026 now that monetary policy is on an easing track. I am conducting my latest monthly survey at the time of writing and expect continued strength to show through in the wide range of measures which I can garner from the survey. In particular, I expect continuing strength in my gauge of the presence of investors.

Last year it was not until October that a net 26% of agents said they were seeing more investors compared with a net 55% in January 2023 who were seeing  fewer. But already come my survey at the end of August a net 24% were seeing more investors compared with -24% just two months earlier.

It looks like a number of new investors are entering the market at the same time as some older ones are reacting to the hike in costs of insurance and council rates by deciding now is the time to realise the value in their retirement asset and place it on the market.

This helps explain why when average prices start rising again – and they probably already are doing so – the rate of increase will not be rapid. At the same time as demand for residential property is now firmly rising the supply of it is growing as well.

A net 50% of agents have reported that they are seeing more people coming in asking about appraisals of the property’s worth. With both demand and supply rising at the same time it is actually impossible to say anything strong about price gains other than that they will be contained.

 One dynamic to keep an eye on is the specific locational impact of large business closures. Factors such as rising electricity costs, decreasing sheep numbers, and general business cost cutting are causing some large facility closures and redundancies in some parts of the country.

In these locations we can reasonably expect the impact of falling financing costs to take longer to have a market impact than in other locations. But before anyone starts thinking this means the cities will strongly lead this upturn, it pays to take into account the rapid shift in migration flows.

The net annual migration gain has fallen from 137,000 in October to now 67,000 and we may be headed below 20,000 again. Net flows mainly benefit the cities and in our largest this demand aspect is being intensified with still rapidly growing new house townhouse) supply.

At this stage when the upward leg of the housing cycle is only just getting started again in earnest it is difficult to pick where the greatest strength may be for the first couple of years outside of perhaps the Queenstown Lakes area. Maybe Christchurch with good affordability with a bias towards areas south of the city such as Ashburton as economic development is tending in that general direction.

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