Sales rise, but prices keep falling
New Zealand house prices have continued to decline through autumn and winter, despite an increase in sales activity.
“There is general acceptance among analysts that New Zealand house prices have been in decline over autumn and winter,” independent economics commentator Tony Alexander (pictured) wrote in an analysis for OneRoof.
Data from the Real Estate Institute of New Zealand shows a nationwide drop of 2.5%, with Auckland and Wellington down nearly 4% and Canterbury down 1.5%.
Recent surveys indicate buying sentiment remains historically strong, with ASB economist Yen Nguyen noting, “The proportion of respondents remaining positive about whether it is a good time to buy remains around the highest level since July 2011.” Still, momentum has slowed, and the market recovery is subdued, even after significant mortgage rate reductions since late 2023.
Job insecurity and migration worries weigh on buyers
So why are prices so weak? According to Alexander, job insecurity is a key factor.
“At the start of 2024, only 14% of agents said buyers were worried about their jobs. That jumped to 56% in June last year and is running at 53%,” he said, citing his monthly survey of real estate agents with NZHL.
Concerns about weak population growth due to low net migration are also top of mind.
“Plenty of Kiwis are heading offshore – especially to Australia,” Alexander said.
In his monthly survey of property investors with Crockers Property Management, “concerns about weak migration rank almost as highly as worries about maintenance costs.”
ASB’s latest housing confidence survey also reports that demand remains weak, with supply at a decade high and net immigration easing.
Buyer’s market and seasonal shifts
The number of homes for sale remains high, giving buyers the upper hand. “A net 26% of agents, in fact, feel that the country remains solidly in a buyer’s market,” Alexander said.
Realestate.co.nz data supports this, with new listings in August up 9% year-on-year, and CEO Sarah Wood noting that vendor confidence is returning as interest rates ease and buyers find more choice on the market.
Some indicators are improving, with a net 55% of agents seeing more first-home buyers in the market, up from 42% in August, and a net 14% seeing more investors, up from 3% last month.
However, Alexander cautioned, “it could be that the improvements in the survey readings are simply seasonal. When spring arrives, the real estate market tends to improve.”
Outlook: Limited house price gains ahead
Looking ahead, Alexander expects the market to improve over summer, driven by lower interest rates and expectations of higher incomes.
“In theory, the market is likely to improve over the summer. This will be because of a lagged response to falling interest rates, plus expectations of higher incomes for many people through 2026 due to lower borrowing costs and stronger farm incomes.”
But he remains cautious about price growth: “Will prices engage in much upward movement? Possibly not, though an expectation of an average 5% gain for 2026 seems reasonable considering the interest rates effect. Restraint is still likely to come from low feelings of job security until well into next year.”
Nguyen also noted, “A gradual recovery is expected, albeit at a much slower pace than initially projected,” with house price expectations weakening and optimism softening across most regions.
Supply growth keeps a lid on prices
Alexander also points to continued strong supply as a limiting factor for price gains.
“Data this past week from Statistics NZ tell us that consents are continuing to track at an annualised total near 34,000 – as they have been doing since exactly two years ago,” he said.
While the pullback from the 2022 peak sounds significant, “the total when compared with population is still at the half-century average of almost 0.65%,” Alexander said.
“Good supply growth is a key change in the dynamics of our housing market. More supply in the absence of much fresh extra demand will tend to push prices down, as we have seen this year. As demand rises, things will become better balanced. But unless house supply turns down again, price gains will be limited.”
ASB forecasts further OCR cuts and expects sentiment to remain relatively high but warns that ongoing labour market challenges and subdued demand will keep buyers cautious for the foreseeable future.
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