“Perhaps the most convincing reason to think the house price correction isn’t over yet is the fact that mortgage rates are yet to peak, given our OCR forecast. We are now forecasting OCR hikes will conclude in May 2023 at 5.75 per cent, with house prices finding a floor not long after that.”
That would imply higher floating rates ahead, but probably a little less upside on fixed mortgage rates, which are determined by wholesale markets, where a higher OCR over time is already factored in, ANZ said.
2. Sale volumes still falling
If sales are slowing, chances are demand for housing is too. That’s why sales tend to be a decent near-term indicator for price momentum.
Prices significantly overshot on the way up so could undershoot on the way down. Sales are still falling, down another 7.4 per cent month on month in seasonally adjusted terms for October. That suggests downward price momentum still has further to go, ANZ said.
3. Days to sell high and rising
The median number of days it is taking to sell a house nationally can give a good indication of the supply-demand balance. At 48 days, this is well above its historical average of 39 days and is still trending up.
4. Regional downturn continuing
There is still further weakness to play out in the currently better-performing regions and little to suggest the current under-performing regions will see rises, the economists said, heading this part of their forecast “regional catch-down” as a reference to the outlook for further drops in these parts of the country.
5. Housing deficit is probably fully eroded
Shut borders, high levels of investment and house building mean we have more houses. Pre-pandemic, we might have been short of 30,000 to 140,000 houses, ANZ estimated.
A “catchup” of 81,000 dwellings might have been built since borders were shut in March 2020. That’s more than the economists’ best-guess estimate of a pre-pandemic deficit of 70,000. Population growth is now driving narrowing surpluses, from a housing stock perspective, ANZ noted.
6. Investor entry point is lower
Policy changes have swung the situation away from investors, towards first-home buyers. That appears to be having some impact. The share of lending to first home buyers is lifting and landlords’ purchasing is reducing.
Removing interest deductibility on rental properties, rising tenant rights, end of the 90-day no-cause terminations, bright-line test extension, rent rise limits and healthy homes standards were all cited by ANZ as policies influencing whether landlords buy more.
As for seeing evidence that prices had reached the floor and would begin to rise, ANZ said it would have expected this was about to be reached if wage-price spiral risks hadn’t materialised into a higher interest rate outlook recently.
By December, “we wouldn’t be surprised to see a new round of housing market negativity come calling. But we may be wrong, so these are great indicators to keep an eye on,” they said, citing six other factors.
Auckland auction clearance rates, Wellington being the first to find the “floor” and its sales and days to sell changing and net migration picking up were some of the factors ANZ said could show the market was recovering.
