Tony Alexander: NZ’s FOMO housing market
People are looking to make a purchase before the rules tighten
Ihave one aim regarding the research, writing and presentations I do in the area of housing: to help people make the most informed decisions they can when it comes to buying or selling property. The baseline method for doing this is undertaking analysis of the usual data from sources such as the Real Estate Institute of New Zealand and Statistics New Zealand, adding in experience built up since the 1970s, then writing and speaking in a language the average person can hopefully understand.
I also carry out four surveys each month, two of which are specifically focussed on residential real estate. One is of mortgage advisors and the other is of real estate agents.
Last week I released the results of my latest mortgage advisor survey, which showed there were lifts last month in the number enquiries from both first home buyers and investors.
The rise looks to have been driven by a combination of people returning from summer holidays, queries about what is happening with bank LVRs (loan to value ratios), and access to the new 2.29% low oneyear fixed mortgage rates being offered.
But I get my most accurate information from my monthly REINZ and Tony Alexander Real Estate Survey. I’ve just completed analysing the results of last month’s survey and the key things they show are as follows.
A net 92% of agents felt that prices are rising. This was up from a net 88% in December and a net 17% in May, when the country was in lockdown and we felt that prices would fall. Only one agent felt that prices were falling now.
A net 90% of agents say that they are seeing FOMO (fear of missing out) in buyers. This is a situation where people are buying not necessarily because they had planned to purchase a property now, but because they are worried they'll not be able to afford a higher price down the track or that they'll miss out on capital gains.
With regard to those price expectations, only a gross 16% of agents say that the biggest worry people have is falling prices, down from
55% in June. And only 18% say that investors are hoping to snare a bargain, down from 60% in June. According to 36% of agents, investors are buying because they expect prices to rise – compared with only 6% who were seeing that in June. And
74% of agents say investors are buying because interest rates are so low.
A record net 48% of agents say they have seen more people at auctions, and a record net
64% say they are seeing more people at open homes. A key factor behind the surge in people physically showing up will be the dire need to know exactly where the market is at before they set an asking price or make an offer.
All of these indicators tell us that we have entered 2021 with the real estate market quickly achieving an even stronger head of steam. Reading these sorts of numbers, the Reserve Bank and Finance Minister’s office will feel more highly incentivised to take measures to try and slow things down. Expectations of this happening probably partly explain the surging markets. People are looking to make a purchase before the rules tighten – especially for LVRs. A 40% investor minimum deposit rather than just a mandated 30% is looking increasingly likely.
Having said that, as an economist I am always looking for changes in the supply of a thing and demand for that thing as prices adjust. And from my survey with REINZ we can see signs of some demand easing off – or maybe just getting burnt off by the high mortgages people must now take out.
In November, a net 64% of agents said they were seeing more first home buyers in the market. Come December that fell to a net 50%. Now it has eased a bit lower to a net 46%. That still means more first home buyers are appearing. But they are doing so in smaller numbers.
Similarly, in November a net 59% of agents said they could see more investors. In December that was a net 45. Now in February, my first survey with REINZ for 2021 shows just a net 31% of agents are seeing more investors.
The tide is not yet turning on the residential real estate markets around New Zealand, and the many comments I have received from agents in this month’s survey (to be republished, itemised by region, in my Tview Premium this week) show buyers are omnipresent and eager. But there is a fraught nervousness behind a lot of the buying taking place, and that is delivering extra policy power to the Reserve Bank.
“Reading these sorts of numbers, the Reserve Bank and Finance Minister’s office will feel more highly incentivised to take measures to try and slow things down.”