Market not as weak as people think

One of the interesting aspects of the residential real estate market at the moment is the way weakness in prices is not being matched by a blowout in the average number of days taken to sell a dwelling. With regard to prices things have shifted from monthly gains averaging 0.9% from July to November last year to falls averaging 0.4% a month since December.

This change is being driven by a range of new pressures being applied to buyers including a loss of job security, extra cost of living charges for insurance (and rates for those already owning property), and new deep cashflow pressures affecting businesses.

The latest outcome is five days longer than average for a May month, December was four days longer than average, and a year ago 10 days longer.

What this tells us is either that vendors are taking properties off the market if they don’t sell in a reasonable period of time, or that buying is still actually happening and the market is functioning efficiently with price adjustments underway.

I think it is a combination of both things. Vendors can see the weakness in the economy and will be feeling the loss of job security just as buyers are. They will know the risk of leaving a property on the market for too long during weak economic times and as happened during 2021-22 are probably stepping back for a while.

However, if this was happening to a large degree the number of properties listed for sale would be falling away. But we know from data provided by realestate.co.nz that the stock of properties listed for sale at the end of May was 26% ahead of July last year at 31,200. This is the highest number of listings since 2015.

If buying were collapsing then turnover would be drifting down at a firm pace. But in rough seasonally adjusted terms after rising near 20% in the June quarter of last year and 10% in the September quarter, sales eased just 2% in the December quarter, 1% in the March quarter and were actually up slightly in the three months to May.

Sales activity is still occurring and one of the drivers may be the fact that many people are in a strong position to make a purchase despite the weak state of the economy and are looking to take advantage of the strong buyer’s market which is now in place.

Buying when so many other people are selling or simply not buying can be a good idea for those with the capital, income security, and a long-term focus as most investors have. In fact, there is strong anecdotal evidence of developers purchasing land at discounted prices in readiness for the upturn in construction demand expected to appear late in 2025 and through 2026 once interest rates have fallen and people turn their focus to the sharp decline in house building now underway.

For the moment the negatives are likely to dominate in the economy and housing market through winter and spring. But the chances of interest rates falling come November are getting stronger and that means this period of conditions being strongly in favour of buyers will not last forever.