ANALYSIS: One of the things people like to say about the residential property market is that such a thing will happen then this other thing will happen, and after that things will flatten out and hold reasonably steady for perhaps a few years. Sometimes this does happen. There was essentially no change in Wellington average house prices for the eight years leading into 2015.
But in my experience as an economist analysing the NZ economy since 1987 and doing something similar for the housing market on and off since the 1970s, periods of nothing much happening are rare. There is always something to write about and opportunities for the canny to find.
So, let’s put that into the context of what we are seeing now and the view in most quarters that once average house prices fall another 5%, we will see an extended period of stability. No, we won’t. When the decline in prices ends, rises will return – they just won’t be frenzied, and they won’t be concentrated in the regions like the past seven years.
Let’s start with the latest results from the survey I run each month of residential property investors in conjunction with Crockers Property Management. The key thing which this survey is revealing (full results out next week) is an easing in the rental market in favour of tenants.
We have identified a one-year high in the difficulties which landlords are having finding good tenants, falling plans for raising rents, and a fall in the average increase sought by those who will seek to boost the rents they charge. The results validate some other data and anecdotes suggesting things are changing and for the moment many of us think this could be due to people who were looking to sell a property they do not live in taking it off the market because of the dearth of buyers. They are choosing to rent it out instead. Data from my survey in fact do show falling plans by investors to sell their property.
Another reason could be the soaring cost of living encouraging some people to double up with friends and relatives for a while to cut their expenses. We also mustn’t forget the flow of people to Australia seeking higher wages and an escape from the despondency ripping through New Zealand this year.
Then there are some interesting comments from my monthly survey of mortgage advisers alongside the people at mortgages.co.nz. The full results will also be released next week and one theme appearing which has not been there for quite a while is some investors starting to show more interest in purchasing a property.
Some advisers noted that their investor clients are keeping an eye on the political polls and if they show a win for National is likely next year, they will buy more property in anticipation of regaining interest expenses deductibility and a shift in the brightline test back to only two years.
These very early signs of investors sniffing around are also there in the latest monthly survey of real estate agents which I run with REINZ. The proportion of agents saying that investors are showing interest because they anticipate finding a bargain has gone up to a two year high of 45% from 40% a month ago and 34% at the start of the year.
It’s not a rush by any stretch of the imagination, and the increasing interest of some investors likely reflects their position as lowly indebted with decades of experience of housing cycles. They are facing far less competition for houses from first home buyers increasingly unable to meet interest rate stress tests, raise a 20% deposit, or meet CCCFA rules, while existing owner-occupiers have become afraid to move. Many are choosing to renovate their existing house instead.
Again, there is no rush of investor buyers yet. The housing market is still weakening. But behind the high inflation headlines mortgage interest rates are looking more and more like they have almost topped out.
What might be the next interesting thing to stimulate a tad more investor interest? Falling annual inflation when September quarter numbers are reported in the middle of October, attention being paid to mortgage rates falling over 2023, and perhaps shortly after that, an easing in the Reserve Bank’s very stringent LVR rules. Housing market stability? I don’t think so.
– Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz