‘Elephant in the room’ for housing
House sales rebounded solidly in February, but activity will need to remain robust to stay on top of a soft market, economists warn.
There were 5693 sales nationwide last month, an 81.8% increase from 3132 in January, according to the Real Estate Institute’s latest figures.
On an annual basis, sales were up 37.9% from 4129 at the same time last year.
Listings and the number of homes for sale also increased, while prices were up nationally, with a 3.1% annual increase to a median of $790,000 in February from $766,000 at the same time last year.
ASB senior economist Kim Mundy said sales activity had bounced back from January’s slump, largely driven by Auckland.
But context was important, and Auckland’s January sales were the lowest in the history of the series, excluding April 2020, she said. Additionally, sales last February were affected by that month’s extreme weather, and 2024 was a leap year.
The next few months should provide a clearer picture of the underlying market trends, with month to month pricing data likely to become less volatile, Mundy said.
“A more pronounced upswing should emerge as the year progresses, but we continue to expect it will be a modest upswing at best.”
While strong net migration, soft construction activity and more favourable investor policies could help to underpin sales and prices, there was an elephant in the room, Mundy said.
“Mortgage interest rates remain high and are impacting people’s ability to service a mortgage. High rates will remain a powerful market moderator this year, given we don’t expect OCR cuts until November.
“A softening economy, particularly a cooling labour market, is also likely to make prospective buyers more cautious.”
Sales activity would need to remain robust to keep a lid on rising inventory, but strong population growth was likely to support demand for housing this year, she said.
“Bringing it all together, we expect prices can lift 7% to 8% or so over the course of the year, rather than the 25% to 30% annual gains managed during the last upswing.”
Westpac senior economist Michael Gordon said the market was more active in February after an exceptionally slow January, but the broader trend was that the market still appeared to be treading water.
The level of sales was now back to around where they were in the middle of last year, and given the surge in new listings in February, a lift in turnover was perhaps inevitable, he said.
“On balance, though, the stock of unsold homes is still rising, which is a negative signal for prices in the near term.
“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 institute’s data was a mixed bag, and suggested that the market was trending sideways. Prices eked out a modest gain, sales rebounded from very weak to weaker-than-average levels, and the lift in housing stock did not point to a tightening market, he said.
“The housing outlook remains a moving feast. The labour market is weakening, but mortgage rates have scope to edge lower this year,” he said. “It’s early days, but today’s data suggests housing momentum is not currently a significant threat to returning inflation sustainably to target, but there’s a lot of water yet to flow under the housing bridge.”