Fewer people are showing up to auctions and open homes and there's been a drop in the number of investors looking to buy, real estate agents say.
While this bodes well for first-home buyers looking to get into the market, most still expect prices to keep rising - suggesting the Government has more to do if it wants to rebalance the housing market.
"These results, alongside many anecdotes of continued firm bidding at auctions over the past two weeks, suggest that if it is a substantial and sustained slowing of the residential property market which the Government is seeking... then their work is not complete," said economist Tony Alexander, writing in the latest REINZ & Tony Alexander Real Estate Survey, published on Wednesday.
The Government last month announced significant changes in how the housing market works, including the almost-immediate extension of the bright-line test for capital gains and a phasing out of investors' ability to use their interest payments to reduce their tax liabilities, which meant they paid less than owner-occupiers to service their mortgage.
"There's a tax loophole that's been exploited by speculators and investors that homeowners don't get to use, and it is making things more unaffordable for first-home buyers," Finance Minister Grant Robertson told The AM Show in March.
Real estate agents say fewer people are showing up to auctions as a result - a net 11 percent in the two weeks after the changes were announced (meaning 11 percent more agents said there has been a decline in attendees recently, compared to an increase). It's the first time there's been a reported decline since the nationwide COVID-19 lockdown early last year.
The fall has been dramatic - the March figure was above a net 40 percent more people showing up. Open homes are also struggling - a net 23 percent of agents saying they're seeing fewer people show up, a "sharp turnaround" from March when a net 40 percent said more were showing up, and February, when the figure was above 60 percent.
And a majority of agents - a net 56 percent - think prices (already at record highs) will continue to keep going up, that's down from over 80 percent in March.
But despite evidence the Government's announcement is helping to dampen investor interest, it's not yet showing any signs of encouraging first-home buyers to get in.
"The Government is hoping that by penalising people for providing rental accommodation in New Zealand, more first home buyers will be able to purchase a property," said Alexander.
"However, our survey shows that whereas in late-February a net 32 percent of agents were reporting more first home buyers in the market, this survey only a net 14 percent have done so. This is the weakest result since our first survey in May."
The second half of last year saw strong interest from first-home buyers, agents reported, but that's fallen every month now since November. REINZ figures show in that time, the median price has rocketed up nearly 8 percent, which could explain the reluctance. In the year to March, prices rose 21 percent.
"Agents continue to observe that prices on average are rising in their location, and they continue to report that buyers are displaying FOMO," said Alexander - FOMO being a 'fear of missing out'.
"A net 66 percent reported things this way at the end of March. This was the lowest result since August last year, but it is still firmly in positive territory and not suggestive as yet of any substantial correction in the market."
While there has been a turnaround in investors' selling intentions - with agents saying more of them are bringing properties to the market now, after a year of holding onto their assets - Alexander says it's not possible to know yet whether that's the result of the Government's moves last month.
"The Government will be hoping that regulation changes will encourage more investors to sell. There has been a trend change in agent perceptions of willingness to sell since the recent peak in unwillingness back in November.
"But we cannot conclude from the small rise in selling intentions this month that the announcements of March 23 have had any impact on willingness of investors to sell."
The main driver for investment remains low interest rates, the survey found, with almost half citing it as their primary motivation. Low interest rates make borrowing cheap.