Housing market stagnates in new reports from BNZ, New Zealand Home Loans

BNZ expects employment anxiety would "inject more caution into housing demand".
BNZ expects employment anxiety would "inject more caution into housing demand". Photo credit: Getty Images

New reports suggest New Zealand's housing market is stalling with "flattish" growth in the first half of the year expected.   

Reports from New Zealand Home Loans (NZHL) and BNZ suggest that the housing market is losing momentum and Infometrics chief forecaster Gareth Kiernan agrees.  

"It's definitely not a sellers' market," Kiernan said.   

Every month, NZHL sponsors economist Tony Alexander to survey licensed real estate agents across the country to get insights about the state of the market. 

February's NZHL report surveyed 391 agents who revealed a noticeable decline in the observed number of buyers in the market.  

A net 6 percent of agents reported that fewer people are showing up at auctions, a marked change from June 2023 through to late January 2024, which had at least a net 20 percent of agents reporting more people were attending auctions.   

Buyer interest saw a "substantial decline" and only a net 9 percent of agents reported seeing more people at open homes, a huge plunge from net 57 percent just the month before.   

"This tells us that for the moment a new wave of caution has swept through potential home buyers," Alexander said.   

Despite the above drops, the number of first-home buyers "remain firmly present in the market".

The net proportion of agents who said they are seeing more first-home buyers in the market only declined to 43 percent, from 55 percent in January.   

BNZ's most recent Property Pulse report noted, while there are positive factors in the market, they are being slowed down by "high mortgage rates and stretched affordability" which they predict will lead to a "flattish" first half of the year.

The NZHL survey suggests that motivated sellers are also exceeding motivated buyers, as shown by high levels of appraisal requests to agents.   

January saw a "record" net of 76 percent of agents reporting to NZHL they were receiving more requests for property appraisals from potential sellers, and this only eased slightly to 61 percent in February.   

This is in line with a surge in listings reported by realestate.co.nz and shows "the queue of sellers on hold since late in 2021 has become more activated at the moment than the queue of frustrated buyers which has built up from that time," Alexander said.   

BNZ said, "the market is struggling to absorb a flood of new listings".  

While discussions from the Reserve Bank about monetary policy tightening again have led to a reversal of concern about interest rates, more agents reported to the NZHL that buyers are concerned about their employment and incomes, up to 23 percent from 14 percent in January.  

"This is the highest reading since September 2020, and it tells us that the weakening in the economy sought by the Reserve Bank and the subsequent weakening in the labour market it needs to reduce wage growth may, at last, be affecting people’s feelings of job security," Alexander said.  

Kiernan said, "in the latter part of 2023, we were still seeing those fixed mortgage rates drifting higher. They have over the last six weeks or so started kicking back in the other direction".

BNZ expects employment anxiety would "inject more caution into housing demand".  

The NZHL survey also observes that buyers' "FOMO levels have fallen away".  

Only 11 percent of agents reported observing FOMO in buyers as opposed to 23 percent late in January, and way down from its high of 92 percent in late-2020.   

"The increase in supply has taken away feelings on the part of buyers that they need to hurry," Alexander said.  

BNZ's report said that the above factors are nullifying the "demographic and policy tailwinds blowing in the market's favour".  

Kiernan said this was consistent with Infometrics observations that there had been a "bit of a drop off in terms of buyer numbers and buyer demand".  

"When you take interest rates in combination with where house prices are at the affordability is still a really major constraint for potential buyers," Kiernan said.  

BNZ predicts a 5 percent lift in house prices this year and action to pick up in the second half of 2024.   

"New home construction looks set to undershoot population requirements, and we'd also expect a boost to demand from likely lower mortgage rates," BNZ said.  

Kiernan agreed that the market would likely pick up in the latter half of 2024 and that there would likely be a lag boost in housing demand from record net migration increases still to come.   

However, Kiernan said BNZ's predictions for that to increase in the next few years are "quite bullish".   

"Our expectation is that you'd probably struggle to get more than 5 percent house price growth per annum because of affordability over the next couple of years," Kiernan said.