‘Sluggish’ housing market struggling to regain footing
High mortgage rates are weighing on the housing market with the latest Real Estate Institute figures showing activity remains subdued, economists say.
The institute’s figures had the sales count nationwide up 8% annually in March, and the national median sales price up for the second month in a row.
But once seasonally adjusted the sales figures were down slightly, and the institute’s house price index recorded a 1.2% decline from February.
Kiwibank chief economist Jarrod Kerr said the institute’s figures showed the market was sluggish and still struggling to regain its footing.
The Reserve Bank market correction that followed “unsustainable” price gains over 2020 to 2021 resulted in an 18% decline in prices, and it was lingering, he said.
“Here we are, recovering without conviction — yet. The annual gain in house prices sits at just 2.6%. We’re back in the black, after being deep in the red, but confidence is grey.”
The enthusiasm that followed the change in government, mainly from the investor community, had waned, and high interest rates were restraining demand, he said. “The last few months are hard to gauge. But activity is showing signs of improving, prices will follow, and the new coalition Government’s policy changes are a positive.
“We expect the market to regain momentum, but it may take a rate cut. And we’re not expecting one until November. Rate cuts are needed to encourage investors to invest, developers to develop, buyers to buy and sellers to sell.
Kiwibank was still still forecasting a strong 5% to 7% increase in prices this calendar year, Kerr said.
“Record migration flows are boosting demand for rentals, which will boost developer confidence, and entice investors back into the fray.”
ASB chief economist Nick Tuffley said while house prices had a reasonably sustained burst of increases in the early stages of the recovery, the performance had been a lot flatter over the past six months.
The institute’s figures showed prices edged down slightly in March, as the patchy performance of recent months continued, he said.
“The tailwind of migration is still blowing hard, but still-high interest rates are a constraint on the market for the time being.”
Sales turnover during an Easter-affected month largely held onto February’s bounce, which itself was strong even allowing for the added Leap Year day, he said.
“Although sales pulled back in Auckland after a pronounced jump in February, sales there are still holding above pre-election levels, and the level of nationwide sales to date this year is putting turnover back on its upward trend.”
But sales turnover was still modest, and new listings had risen, which meant the number of houses on the market had nudged up, Tuffley said.
“There are seven to eight thousand new listings coming onto the market each month at present, which is outpacing the still-modest pace of sales.
“As a result, there isn’t much price tension in the market, contributing to the relatively flat performance of prices at present.”
He expected prices to lift with “less torpor” in the second half of this year, although more like 5% to 6% for the calendar year rather than 7%, and stronger recovery next year.
Westpac senior economist Michael Gordon said the market remained soft in March, and while sales had picked up from their lows, prices remained under pressure.
The number of house sales remained well below the long-run average, and the rise in sales was not a product of stronger demand, but of increased availability, he said.
“New listings have surged in recent months, and even though there has been an accompanying lift in purchases, the number of unsold homes on the market is still climbing, reaching an eight-year high.”
In that light, it was not surprising that some of the recent resilience in prices had finally given way, he said.
“We estimate the institute’s house price index fell by 0.2% in seasonally adjusted terms in March, with annual house price growth easing from 3.2% to 2.6%.
“We expect the current softness in the market will gradually give way to a period of stronger activity, underpinned by a multi-decade high in population growth and a lift in investor sentiment.”
But until mortgage rates started dropping back, the market was likely to remain moribund, he said.
For ANZ senior economist Miles Workman, the outlook for the market over the year ahead was very mixed, and therefore very uncertain.
He said key drivers were pushing in opposite directions, with the unemployment rate expected to rise while fixed mortgage rates had scope to fall.
“Macroprudential and housing related government policy changes appear broadly supportive for prices this year.
“Meanwhile, rapid population growth is more than outpacing slowing construction activity, meaning the country’s housing deficit is widening.”
While that would typically be supportive for prices, affordability remained stretched and would be limiting the potential for increases, he said.
“Our forecast is for a modest 3% rise in house prices over 2024, but today’s data hints at some mild downside risk to that.”
It was too early to call the latest data the beginning of a new, sustained downtrend, but for now the housing market did not appear to be threatening to drive a resurgence in CPI inflation pressures, Workman said.