Housing market ‘ship will take some time to turn’

Monday, 15 July 2024

There were just 4356 house sales nationwide in June, the latest Real Estate Institute figures show.

House sales fell to lows not seen since the global financial crisis in June, and the market is unlikely to pick up any time soon, experts say.

The Real Estate Institute’s latest data was out on Monday, and it showed there were 4356 sales nationwide last month, a decrease of 25.6% from 5854 last June, and of 32.6% from 6461 in May.

While listings and the number of properties for sale increased, the national median price fell 1.3% annually to $770,000 – although on a regional basis prices were a mixed bag, with some regions recording increases.

ANZ senior economist Miles Workman said the institute’s figures showed it was a chilly month for the market, with sales plummeting in June.

Barring the Covid lockdown related dip in 2020, it was the second weakest June since records started in 2007, he said.

House prices continue to fall across New Zealand.

“Annual house inflation is moderating, and the institute’s seasonally adjusted House Price Index fell 0.3% on a monthly basis in June. The monthly change suggests further near-term weakness lies ahead.

“Meanwhile, rising inventories continue to suggest the market is loosening, and auction clearance rates in Auckland are looking pretty soft too.”

The figures suggested some downside risk to the bank’s recently downgraded price forecast for this year, he said. Two weeks ago, ANZ cut its forecast to a 1% rise from 3%.

“At face value, these data suggest headwinds to the housing market from the softening labour market could be blowing a little harder than previously expected.”

But it also suggested sticky CPI inflation risks could be more mitigated than the Reserve Bank had been expecting, and could be added to the growing list of indicators suggesting it had done enough, Workman said.

“With financial conditions looking set to ease more quickly than previously expected, the next big question is how quickly that will impact housing demand.

“The answer to that will depend on how much damage is yet to flow through to the labour market. We suspect it’ll take some time for the ship to turn.”

Westpac senior economist Michael Gordon said the market had remained soft in June, with sales falling back towards their earlier lows.

The stock of unsold homes has reached a nine year high, Westpac’s Michael Gordon says.

Separate data from Realestate.co.nz showed new listings were still hitting the market at a faster pace compared to last year, he said.

“With sales cooling off after an initial burst earlier in the year, the net effect is that the stock of unsold homes has reached a nine-year high.”

The average time to sell rose from 42 to 44 days in June and remained slower than its long-term average, Gordon said.

“Last month we revised down our forecast for price growth for this year from 5.8% to 2.1%, with a smaller downgrade to our 2025 forecast as well.

“Since then the Reserve Bank has shifted its tone, opening up the possibility of earlier rate cuts, but that’s been in the context of signs of a marked softening in economic activity in recent months.”

That suggested the housing market was likely to remain on the back foot in the near term, he said.

Opes Partners property economist Ed McKnight said the institute’s figures showed the market across the board was particularly quiet in June.

When there are signs interest rates are going down, housing market activity will start to pick up, Opes Partners’ Ed McKnight says.

Since around April last year there had been a consistent recovery in sales, but now sales had dropped, and Auckland highlighted the change, he said.

“The region had just under 1300 sales in June, down from 1900 in May, while last June there were 1900 and in June 2022 there were 1700.

“So last month’s figure is particularly weak, and it is not just seasonal, nor is it the extra public holiday. It is back at GFC lows.”

He said Barfoot & Thompson had recorded their lowest June sales in 14 years, and some developers, who sell their own properties, were struggling.

Disappointment around interest rates was impacting the market, as a lot of people had expected to see more movement in rates by now, he said.

“But mortgage advisers say they are still relatively busy, which suggests sales and activity data are out of step. Maybe people are in the market looking, but not committing.

“The reduction in the bright line test came into force on July 1, and people may have held off selling so they didn’t need to pay bright line. That wouldn’t explain developers not selling, but it could be a contributing factor.”

Weaker sales were flowing through into prices, but the downturn was still transitioning into a recovery so the variation in price results around the country was not surprising, McKnight said.

“Interest rate changes are key, and as soon as soon as there are signs they are going down there will be a change in mindset, and activity will start to pick up.

“They have both a psychological and a real impact on prices.”

If there is some movement in rates, people might even pull forward decisions on buying because they think prices might start to go up again, he said.

“The key question is inflation, but if the CPI results this week come in below the Reserve Bank’s forecast of 3.6%, it could impact on wholesale rates, and that in turn could flow through to interest rates.”