Has the tide finally turned for the housing market?

Sunday, 27 October 2024

Falling house prices and low sales have made for months of gloom for the property market, but there is light at the end of the tunnel, experts say.

Recent data from CoreLogic and Quotable Value showed prices continued to decline and the market remained subdued in September.

But the Real Estate Institute’s September data suggested an improvement, according to independent economist Tony Alexander’s latest analysis.

He says the institute’s house price index, which smooths out variations that come from sales figures, shows the average change in the past three months has been +0.3% compared with -0.8% three months ago.

“Prices are rising again. We’ve been here before, and the price rises have not continued. But now the borrowing costs which buyers face are going down with further declines indicated by the Reserve Bank.”

Market activity is also picking up, with sales around the country rising by almost 9% over the three months to September in rough seasonally adjusted terms, he says.

“The housing cycle is turning upward but not at a fast pace. It usually takes four years from this point for the fastest pace of price increase to come around.”

Opes Partners property economist Ed McKnight agrees with Alexander, and says it is clear from the data that the market has started to turn a corner.

The institute’s house price index had house prices falling quite rapidly from March through to about June, but in July and August they were flat, and in September they were up by 1%, he says.

“While there is always a bit of an uptick in market activity in spring, the main reason the market is more buoyant comes down to interest rates.

“They have fallen quite dramatically this year, far faster than anyone thought they would.”

At the start of the year, he asked the economists from the major banks where they picked interest rates to be sitting at the end of this year, and they all thought one year fixed rates would be about 7%.

But the one year rate at every bank is now 5.99%, which is 1% lower than the economists picked, and there are lots of rate discounts going on in the background, he says.

“For someone looking for a mortgage of about $500,000 that lower rate will cost about $100 a week less, and that means it is cheaper for people to go out and buy property now.

“There’s also been a decline in banks’ serviceability rates. Earlier this year they were about 9.1%, and now they are closer to 8%, so people can borrow more.”

Alongside the decline in rates has come an increase in consumer confidence. It is still below the historic average, but it is the highest it has been since 2021.

“The more positive outlook makes a difference, and is leading to more activity in the market. At Opes, we saw a 44% increase in enquiries in September from the same last year.

“Rising unemployment balances it out a bit, but people who have jobs can borrow more money and more cheaply, and that does tend to lead to house price increases.”

CoreLogic’s latest Home Value Index shows prices falling for the seventh month in a row in September, with a 0.5% drop. That left the median national price at $805,426, down 17.6% on the market peak in late 2021.

But CoreLogic chief property economist Kelvin Davidson says there are signs the market is improving, with valuers reporting an increase in enquiries and higher sales volumes.

House prices are stabilising, and he would not be surprised to see a halt to the falls when October’s data comes in, he says.

“I’ve been talking to developers and to investors … and the vibe has definitely shifted. There is definitely a sense that things are making a bit more sense for them with interest rates coming down.

“That’s not a surprise as rates are a crucial factor in the market, and the results of decreasing rates are likely to flow through quite quickly as so many people are on floating or short term fixed rates.”

It will have an impact on market activity, but the end of a downturn does not mean the start of a boom, he says.

“The economy is still pretty weak, with plenty of job insecurity, listings are high and there’s an overhang of properties for sale, and while prices have fallen they are not cheap so affordability pressures remain.

“And while sales are rising, and we expect about 5% to 6% growth this year and next, they are coming off a particularly low base. So even in a couple of years’ time they may still be below the long-term average.”

Interest rates are pushing in one direction, but there are restraints as well, and next year the Reserve Bank’s debt-to-income ratios will come into the mix.

“They are not doing anything now, but the more rates fall, the quicker they will kick in. And they will have an impact, particularly on investors.”

That makes Davidson cautious about the extent of any upturn. He expected a subdued upturn this year, but the market fell, and now he expects it to come next year.

It was a similar story for the market after the global financial crisis, with the market remaining flat for four to five years after big price falls, he says.

“People think the market is all about big swings up and down, but it can just tick along at a slow, steady rate. That’s likely to be on the cards, but a more stable market is not a bad thing.”

One segment particularly hard hit by the downturn is the apartment market.

But real estate agent Scott Dunn, from apartment specialist City Sales, is feeling more optimistic these days.

After a series of “false starts” over the past few months, there has been a noticeable shift in buyer enquiry and activity, and in new listings over the past two weeks, he says.

“Sales were sluggish or at least erratic over the middle of the year, but there was a notable increase in October, and the auction bookings for November are strong.

“The apartment market often has a peak in the lead up to Christmas, but timed with good news on the OCR front and more positivity in the market, we are hopeful this turnaround will be sustained.”

Prices have not had a significant lift, and he did not expect that to happen in the near future, he says.

“It’s more an attitude now of ‘let’s get on with it and move forward’, timed with an upsurge in buyer confidence.”

As the new property cycle begins, houses will again stretch further from apartments in terms of sale values and affordability, he says.

“In turn, this will direct younger people and first home buyers towards the apartment market as a more affordable and viable alternative.

“But there are some fantastic options for first home buyers around now, quite different from the early 2000s which was predominantly shoebox style offerings. I think there are exciting times ahead.”

The government has made changes to tax policies and tenancy law in a bid to encourage investors into the market. An increase in investors would add stimulus.

To date, investors have not flooded the market, but Trade Me Property reported a rise in investor interest with searches for keywords like income, home and income and rental all trending up.

And CoreLogic data shows mortgaged investors made up 22.6% of all purchases in October, up from a record low of 20.4% a year ago.

Auckland Property Investors Association general manager Sarina Gibbon says members are more positive and upbeat than in recent years when sentiment was very negative.

“Growing numbers are talking about gearing up to purchase, and consulting with service providers, such as mortgage brokers and renovators.

“We are also seeing a resurgence of interest in property trading strategies, which is a normal part of the cycle. Traders tend to take advantage of the moment just before a market upswing.”

With the rejig of the CCCFA, lending has become easier, and banks are competing for market share, with enticements such as cashback offers, Gibbon says.

“Banks competing for borrowers tends to be a good indicator of where the market is heading. With more investors looking to buy, I think we’ll see a slow, steady recovery.”