Ayman Amirul Mounir/Staff
House prices appear to have turned a corner.
For the past eighteen months, the housing market has been in a steady state of recession.
Since their peak in late 2021, prices have fallen by 16.1% according to property figures, and trading volume is about half what it was at the end of 2020.
But there are growing signs that things have changed. This week, economists at Kiwibank said it looked as if May was the lowest point for the housing market.
So what prompted the change?
Immigration
This is the big thing. Forecasters predict that sometime over the next month or so, New Zealand will receive 100,000 net migrants into the country.
Jarrod Kerr, chief economist at Kiwibank, says this is likely to mean between 40,000 and 50,000 more homes will be needed.
Some immigrants rent their homes rather than buy them, but this additional rental demand could also boost the real estate market.
More flexible credit standards
Kelvin Davidson, chief property economist at Corelogic, said it was now easier to get a mortgage, which had helped prices.
From June 1, banks were allowed to lend 5% of their new loans to investor borrowers with 35% of deposits, compared to 40% previously.
They were also allowed to lend 15% of new loans to owner-occupiers at 20%, instead of 10% previously.
That, coupled with a change in Consumer Credit Contracts and Finance Act (CCCFA) rules, means an increase in activity, Davidson said.
“The latest figures show a significant rise in the share of investor loans taking out with a deposit of between 35% to 40%. If you had a 37% deposit in May, your account was closed but as of June 1, you can get in. This has not led to an increase Large in number of investors but for this group, they were more active.
“We have also seen that the share of lending going to owners at a low deposit level has also risen.”
Interest rates may reach their peak
Interest rates are higher than they have been in years, but the fact that they probably won’t rise much is drawing people back, Davidson said.
“It’s a bit of a nuanced issue because interest rates are still high, but more people believe they won’t get any worse. They can say what things look like in the worst case scenario. If I’m comfortable with that, since I still have a job, I can make some decisions. No. Not only do they reach climax, but there is a psychological element as well.
Chris McKean/Staff
Home prices are likely to rise after the election, regardless of who wins, says Satish Ranchod, chief economist at Westpac.
No new listings
The number of people wanting to put their homes on the market has declined significantly over the past year and reached record levels in the middle of this year.
Realestate.co.nz spokeswoman Vanessa Williams said there had been a number of consecutive months this year when listing numbers fell by double-digit percentages compared to the previous year.
“The lack of listings combined with higher sales means less inventory on the market,” Davidson said. “Buyers who are out there, who have financing, have fewer options in the market.”
This means that people have to compete more for desirable places.
Strong job market
The labor market was resilient to the economic downturn. The unemployment rate remains at 3.6%. Davidson said that limited the extent of the economic downturn, because fewer people had to sell, and gave people more confidence about making decisions.
There may also be a sixth factor driving the recovery, he said.
“People look at all these things, and there’s a trust factor, and the mindset starts to shift.”
Davidson said he does not expect prices to rise significantly.
“The housing market always tends to surprise, and I wouldn’t rule out a faster recovery, but look at the fact that prices are still high – they have come down but they are still very high – interest rates are not going to go down and anytime soon, there will likely be caps on interest rates. Debt to income next year, it’s hard to see a significant or sustained uptick. That boom we saw post-Covid, it’s hard to see that repeated.
He said the National Party’s policies would lead to higher prices overall if it wins the election. Some investors may also try to enter the market before potential limits on the amount they can borrow relative to their income.