Cotality (formerly known as CoreLogic and one of the foremost authorities on the housing market) recently noted that volumes have been gradually rising for about two years.
It points out that the rise in May activity pushed sales levels to 5% above anything we’ve seen at that point in the year since 2016.
On that basis, the slump looks to be behind us, but we haven’t seen a recovery on the pricing front.
The REINZ house price index (HPI) has fallen for six out of the past seven months.
Nationwide prices are unchanged over the past 12 months and still 16.3% below the peak in late 2021.
That’s not the case everywhere, of course.
The South Island has performed much more strongly, with Canterbury, Otago and Southland more buoyant and all within 5% of the peak.
The impact of a solid agricultural sector is likely to be part of the reason for that.
In contrast, Auckland and Wellington have struggled and are still more than 20% below the heady levels of a few years ago.
The median number of days to sell is also elevated, reflecting a sluggish market in which properties sit unsold for longer.
It rose to 50 days in June, and has averaged 47 in the past 12 months.
That’s the highest since mid-2023, when interest rates were rising quickly and the economy was in recession.
Excluding that period, it’s the highest since 2008 and 2009, during the Global Financial Crisis.
There are numerous reasons to explain our underperforming housing market.
For a start, affordability is still awful.
Prices have been flat for two years, having fallen almost 20% from the peak before that.
However, the rise during 2020 and 2021 was so dramatic (48% in less than two years) that, even after the multi-year slump, prices are still more than 20% above pre-Covid levels.
That boom was primarily driven by ultra-low borrowing costs, with the one-year mortgage rate falling to 2.2%.
In data going back to the early 1960s, there’s never been a time when interest rates have come close to being that low, and we might not see them again in our lifetime.
Many would argue that prices were pumped up so much during that period that they might need to fall further (or at least languish for a little longer) for reality to catch up.
Other costs of home ownership – such as rates, insurance and maintenance – have also increased sharply, while the policy backdrop hasn’t been friendly to investors.
Net migration has declined much more than expected, after hitting record highs in 2023.
To use a technical phrase, it’s fallen off a cliff.
New migrant numbers (of working age) were comfortably above 100,000 a year 18 months ago, but they’ve dropped to fewer than 10,000 today.
Apart from the Covid-era when the borders were closed, that’s the lowest since the 2010-13 period, and before that 2000-01.
For many of those who are still here, job security is a concern.
The unemployment rate has been steadily increasing for three years, and it’s sitting at 5.1%.
Apart from one quarter during the unusual Covid period, that’s the highest in more than eight years.
People are reluctant to make major financial commitments when they don’t feel completely safe in their jobs.
Unemployment is expected to push a little higher, so a shift in sentiment could be unlikely until late this year or into next year.
Nobody can accurately say where house prices will go from here.
Plenty of people incorrectly predicted declines in early 2020, and just as many expected a recovery to be under way by now.
Reserve Bank forecasts suggest prices will grow by 4.2% annually over the coming three years.
That’s below the long-term average (which has been 5.7% since 1990) but it’s slightly above inflation, GDP and population growth expectations.
All these headwinds, as well as a high number of listings, have swung the power balance in favour of buyers, including those looking for a first home.
That’s unlikely to change in the near term, which is good news in many ways.
I’m not sure if any of us should be hoping for another boom.
A stable-but-sluggish period for house prices could be a more desirable outcome for the economy, and society overall.
For the first time in a long while, the housing market is working more for buyers than sellers, and that rebalancing might be exactly what we need.
Mark Lister is investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.
