The housing market’s soft but recovery is on the cards

Thursday, 23 January 2025

House sales and prices turned in a muted performance at the end of last year, but the market has passed its lowest point, economists say.

The Real Estate Institute’s latest figures showed a “larger than usual” drop-off in sales in December.

Price movement was subdued, although 11 of 16 regions reported an annual increase in their median prices. But the national median price fell 1.8% from November to $775,000 at year’s end.

ASB economist Yen Nguyen said the institute’s data presented a mixed picture of the market, with prices up modestly once seasonally adjusted and sales down substantially.

The market ended the year on a soft note, after struggling to establish a clear direction over the year as monthly price movements had usually been modest in either direction, she said.

“Overall, prices were down over 2024 due to restrictive monetary policy settings and numerous headwinds facing the market.”

The ongoing weak economic backdrop, with rising unemployment and slowing wage growth, along with easing migration would constrain market demand, she said.

But mortgage interest rates were moving lower, and ASB believed the market had passed its lowest point, and conditions were in place for a recovery in 2025.

“Given the high level of inventory, it will take some time for sales turnover to strengthen enough to clear the excess stock overhang,” Yen said.

“From there, we expect house prices to start gradually increasing, likely in the second half of 2025 resulting in overall growth of approximately 7% for the year.”

ANZ economists Henry Russell and David Croy agreed a market recovery was under way.

They said that when seasonally adjusted the institute’s house price index rose 0.2% in December, which was the second consecutive monthly increase and third in the past four months.

While sales volumes fell in December they tended to be revised higher over history as sales were typically under reported at the time of release, they said.

“Days to sell rose by three to 50. Looking through the month-to-month volatility, the three-month moving average has stabilised, though at 48 it is well above the long run average of 39.

“All up, these data remain consistent with house prices finding a floor, paving the way for a recovery over 2025.”

ANZ expected prices to rise 6% over the coming year, and the institute’s data reinforced that expectation, with further evidence that the housing market stabilised late last year, they said.

“But the recovery in the market is likely to remain gradual at first, with the labour market still adjusting to the past weakness in the economy. A meaningful upswing in prices is likely a story for the second half of the year.”

Infometrics economist Matthew Allman pointed to the new listings and stock figures as evidence of the changing market.

He said they showed the stock of properties available for sale fell 1.6% in December from November, declining for the second consecutive month.

New listing numbers fell 13% from November, the second consecutive double-digit decline, and they were lower than a year ago for the first time in a year, he said.

“Properties available for sale on the market appear to have peaked and, despite a large 13% month-on-month fall in sales, the surplus of stock available for sale was able to narrow.

“With households rolling onto lower mortgage rates over the next six months, there should be less financial pressure to list, so we expect to see listing numbers continue their downward trend.”

But at a household level, there would be some shift of concern from mortgage rates to job security as unemployment rises over the first half of 2025, potentially offsetting some of the mortgage rate relief, Allman said.

“Potential buyers might be waiting on the sidelines for further reductions to mortgages rates following the likely cut to the official cash rate by the Reserve Bank in February.”