NZ house prices remain flat as buyers retain the upper hand

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1. 0:06Speaker 1: Kia ora, I'm Chelsea Daniels, and this is The Front Page, a daily podcast presented by The New Zealand Herald. MUSIC
2. 0:16Speaker 1: New Zealand's housing market has taken another step backwards. Property values have now fallen for six months in a row,
3. 0:24Speaker 1: with the national median value dropping below the previous cycle low.
4. 0:29Speaker 1: And while buyers may have more choice in bargaining power, there's still little sign of a sharp rebound with high mortgage rates, economic uncertainty and and plenty of houses on
5. 0:40Speaker 1: the market keeping a lid on prices. So what's happening in the housing market and how much longer could this subdued period last? Today on the front page, CotalityNZ Chief
6. 0:51Speaker 1: Property Economist Kelvin Davidson.
7. 0:54Speaker 2: Is with us to break it all down. So Kelvin, we've had six consecutive months of falling property values. What's driving this?
8. 1:06Speaker 3: Well, I think the main thing really is that it's still a buyer's market. If you think about the sort of balance of power out there, it's still in favour of buyers. Now, those buyers have to be confident about
9. 1:16Speaker 3: their job and be able to secure finance and all of that sort of stuff. But if people can satisfy those criteria, then there's still a lot of listings, still a lot of choice. People know that, well, if I
10. 1:27Speaker 3: don't get this place, there's probably just one down the road, pretty much the same that I can buy. So, the pricing pair is still with buyers. Obviously, in that situation, you tend to see values stay pretty subdued. I would
11. 1:38Speaker 3: say on the other hand, though, I guess people still talk about the housing downturn. And really, if you look at property values, at least on our index and other measures as well, the downturn actually happened in 22 and 23.
12. 1:49Speaker 3: Since then, I mean, house values haven't recovered by any means.
13. 1:52Speaker 3: But since that point in sort of mid-23, they've actually been pretty flat. So we had the the big COVID rise, the post-COVID fall, and over the past three years, actually,
14. 2:02Speaker 3: it's been reasonably flat. Now, there's been regional stories in there.
15. 2:06Speaker 3: Christchurch and Cargill, say, as examples, are still creeping a little bit higher. Auckland and Wellington are still a little bit weaker. So, you know, you've got those regional stories,
16. 2:15Speaker 3: but in general, it's averaged up to something that's reasonably flat. Now, I mean, buyers still have the pricing power, but I think that's what that's showing you is that it's not, all in their favor and and you know what we're
17. 2:27Speaker 3: seeing is that sellers aren't necessarily having to capitulate either because most most people in work have actually kept their jobs yes there's been some job losses but the people who already in jobs already with mortgages and with houses
18. 2:39Speaker 3: have largely kept their jobs so you know forced selling repayment problems haven't really been an issue so i think there's it's still in favor of buyers but there is a bit of balance out there um The rise in
19. 2:49Speaker 3: unemployment has come more through new workers coming into the labour force, you know, maybe graduating, coming out of school, returning to New Zealand after a period overseas, that sort of thing. Tougher for them to find jobs because hiring
20. 3:00Speaker 3: activity has been a little bit cautious, but people already in work have had a degree of insulation. So, yeah, there's a bit of balance out there. But, of course,
21. 3:09Speaker 3: sort of alongside all of that, there's still an economic problem.
22. 3:13Speaker 3: issue economic uncertainty globally domestically looks like we might be turning around a little bit but still a bit of uncertainty there and yeah then more recently mortgage rates think a little bit higher that's that's never going to be
23. 3:25Speaker 3: supportive for the housing market in terms of transactions and prices so yeah a few things out there but i think really the main thing is you caught a buyer's market what do you see in a buyer's market pretty flat values.
24. 3:36Speaker 2: So buyers are still holding most of the negotiating power, but what you're saying is that sellers don't necessarily have to sell, like they're comfortable with leaving houses empty for longer.
25. 3:46Speaker 3: Yeah, or well, possibly empty, but I suppose the way I think about that is it's sitting on the market for longer, you know, before they commit to a sale
26. 3:57Speaker 3: and obviously, I'll just hang on a little bit longer, you know, that price isn't quite what I want, prepared to sit there because we're not really seeing that forced selling pressure, we're not We're not seeing mortgagee sales really
27. 4:09Speaker 3: or non-performing loans on the bank's books. You know, people aren't really getting into arrears. So, yeah, I mean, you know, it's a bit of a pain, puts your life on hold, but people are prepared to at least sit for a
28. 4:20Speaker 3: little bit longer. They can just wait because they're still largely in employment and still got that income. So, you know, the bank's not really going to come knocking if you're still servicing the debt. So I think, yeah, some of
29. 4:31Speaker 3: those houses may well be empty if it's perhaps a an investment property and people have been given their tenants notice that they're intending to sell. Maybe those tenants have left already. So some of those properties might be empty,
30. 4:42Speaker 3: but yeah, in general, I think that the bigger point is that those people largely still in work don't necessarily have to sell it at a bargain basement price.
31. 4:53Speaker 2: So the national median property value has fallen to $ 797, 078 specifically.
32. 5:02Speaker 2: below the previous cycle low from June 2023. How significant is that?
33. 5:06Speaker 3: Yeah, well, I mean, it creates a bit of a headline, I suppose. But, you know, the context is always important.
34. 5:13Speaker 3: And when you look at it on a chart, I suppose I'd just come back to the point I made earlier that, yeah, technically, it might be slightly below that mark from June 23. But when you zoom out and sort of look on a chart, it's a bit of
35. 5:24Speaker 3: a technicality, really. The big point is that We went through that big downturn, we got to a lowish level in the middle of 23 and we've pretty much stayed there.
36. 5:33Speaker 3: And yeah, there's kind of been little gyrations around that.
37. 5:35Speaker 3: And like I say, there's been those regional stories in markets like Auckland and Wellington where things have been a little bit softer versus perhaps farming-based, exporting-based economies in the South Island. Yeah, there's been a little bit more strength
38. 5:46Speaker 3: in the housing market. But in general, yeah, it's been pretty flat. We're seeing sales volumes trend a little bit lower this year as well. not a terrible level of sales,
39. 5:56Speaker 3: there's still deals being done, but compared to where we thought sales might be, you know, we're anticipating growth this year, so to have seen slight falls in sales is a very different sort of path from where we thought we
40. 6:07Speaker 3: might be, so yeah, it's just, I suppose I try not to use the phrase more of the same, but we find every month that it's just, it really is, you know, sales just drifting a little bit lower, house
41. 6:19Speaker 3: prices sort of trending sideways, up and down different parts of the country, but So, you know, there is a bit of a holding pattern, listing still quite high. Of course, in a buyer's market, you know, that's good for buyers.
42. 6:30Speaker 3: And we're seeing first-home buyers still really, really strong at the moment, taking advantage of reduced house prices, low deposit lending at the banks, tapping into their KiwiSaver, those sorts of things. So there's always two sides in the market
43. 6:42Speaker 3: and first-home buyers still doing really well. Mortgaged investors, kind of there or thereabouts, you know, a little bit quieter than perhaps where they'd normally be. There's been a lot
44. 6:50Speaker 3: of uncertainty about interest deductibility, rules and people thinking well if Labour wins the election you know they'll probably phase that out again and that's going to hit our cash flow well Labour's come out recently and said we're not
45. 7:01Speaker 3: going to do that we'll leave deductibility rules the same so I think that that has taken away a source of uncertainty for some investors but there's still challenges there rents are reasonably subdued if Labour does win we'll see
46. 7:13Speaker 3: a capital gains tax next year so that could be a hurdle costs are up in terms of council rates home insurance and of course mortgage rates have crept higher too so The sort of pros and cons for investors,
47. 7:25Speaker 3: I suppose the group that we're seeing fairly quiet at the moment is owner-occupiers. So people in an uncertain economic environment just aren't moving as much as they'd normally do, which kind of makes sense if you're a bit unsure.
48. 7:36Speaker 3: You probably just stay where you are rather than looking to you know, shift regions or trade your house up and maybe take on more debt, you probably just sit tight, wait it out and sort of see what happens. So, yeah,
49. 7:47Speaker 3: there's always different perspectives, but in a buyer's market, first-time buyers are certainly doing pretty well.
50. 7:53Speaker 2: If we look at property investors and if they are quite, because they're in tune with what's happening in politics and the economy and world events kind of thing more so
51. 8:02Speaker 2: and in terms of their investments, if, say, Labour does win and we do expect, capital gains tax to kicking
52. 8:10Speaker 2: next year. Before that tax comes in, would we see a kind of, you know, off-selling of a whole bunch of properties before it comes in?
53. 8:21Speaker 3: I wouldn't necessarily expect that, no. I mean, there's always going to be investors purchasing, there's always going to be investors selling, you know, that's just sort of part of the market cycle. But of course, keep in mind with
54. 8:32Speaker 3: capital gains tax, it's only going to apply from a from a date onwards. It's not retrospective. So it'll only apply to any capital gains made after the 1st of July, 2027,
55. 8:42Speaker 3: if that even comes to pass, if Labour gets into power.
56. 8:47Speaker 3: And of course, you only pay it if you make a gain and your gains, it would take a while to accumulate too because it's from a fixed date from
57. 8:57Speaker 3: so-called valuation day. So yeah, I wouldn't necessarily expect a big sell-off. I sort of detect that Yeah, from an investor's perspective, ideally, they wouldn't have capital gains tax either.
58. 9:09Speaker 3: But in recent months and weeks, we've been chatting to different groups and different investors. And, you know, as I say, people would, from an investor's perspective, they'd ideally not have
59. 9:20Speaker 3: capital gains tax either because that will reduce their expected returns.
60. 9:23Speaker 3: But the bigger concern was by far that interest deductibility factor.
61. 9:28Speaker 3: That was the thing they were much more concerned about because, you know, ultimately, you only pay capital gains tax if you sell You're only part, if you make a gain, there's a sort of sense coming through now that capital
62. 9:39Speaker 3: gains might be less in the future anyway. And so there's perhaps less for people to be concerned about on that front. But the deductibility changes were, if they were going to come in, very real, hit the cash flow
63. 9:51Speaker 3: year after year, your tax bill's higher. And of course, capital gains are all academic anyway. If you can't keep the cash flow up and keep servicing that debt and keep the property in the meantime, So, yeah, that tax
64. 10:02Speaker 3: thing around deductibility was a much bigger concern. That's now probably gone away, barring any sort of coalition changes that may well happen. You know, I suppose you couldn't rule that out. But, yeah, I detect that people– apathy is
65. 10:13Speaker 3: probably not really the right word, but, you know, there was a sense that, okay– you know, capital gains may be not the worst thing. We're more concerned about deductibility. So, you know, I don't think people will be selling off
66. 10:25Speaker 3: massively just because of the possible threat of CGT.
67. 10:35Speaker 4: How much do you really want the value of your property to fall? And I mean, really, how much? Plenty of us say we want cheaper house prices, but do we really mean it? Once you own a house, you
68. 10:46Speaker 4: usually have a mortgage on it. The less your house is worth, the less equity you have in it. Your net worth goes backwards. In New Zealand, half of the average household's wealth is land and property. Half of what
69. 10:58Speaker 4: we're worth is our land and our property. That is now worth less, almost 2% less today than it was a year ago.
70. 11:09Speaker 2: You mentioned first home buyers before, and I'll come back to those. So if you're a first home buyer, is this the kind of market where you can afford to be more selective or negotiate harder?
71. 11:21Speaker 4: Yeah, for sure.
72. 11:22Speaker 3: Yeah. There's a lot of choice out there, a lot of listings. You go and see a property you like, well, it's probably something similar just down the street. If you don't get that one, you'll probably get the next one.
73. 11:32Speaker 3: So it is a It's definitely, they don't call it a buyer's market for no reason. So there is a strong opportunity to negotiate and push pretty hard and get the property that people really want. I suppose what we've
74. 11:42Speaker 3: been seeing lately also is that, and now first-time buyers have never, I mean, some do buy, I suppose, if you want to call it at the bottom of the ladder, you know, and sort of trade their way up over time.
75. 11:52Speaker 3: But we've been seeing for the last 10, 15, 20 years that that's not always true. There's a lot of first-time buyers who actually enter further up the housing ladder anyway.
76. 12:03Speaker 3: But that's become even stronger in the last little while because it's been a buyer's market. People's deposits stretch further.
77. 12:09Speaker 3: There's perhaps been a little bit less competition in those sort of middle price brackets. I guess that'll differ around the country, but talking in the sort of, I suppose,
78. 12:18Speaker 3: 700,000 sort of brackets, 700,000, 800,000, there's been a little bit less competition there. So people have maybe in another market, they might have just taken the cheapest property because that's
79. 12:28Speaker 3: all they could afford. Now, there's actually an opportunity to to just step up a little bit, maybe get that fourth bedroom rather than three or get that nicer suburb
80. 12:37Speaker 3: or area. So, yeah, either way you cut it, first-time buyers are enjoying conditions right now.
81. 12:43Speaker 2: How important are interest rates here? Could those lower mortgage rates be enough to turn the entire market around or is there just bigger economic issues at play?
82. 12:53Speaker 3: Yeah, look, I think you can– sort of get too tied up in how long is the short run and how long is the long run. There's probably no real definition of that. But over shorter periods of time, I
83. 13:04Speaker 3: think mortgage rates are driver number one in the housing market.
84. 13:07Speaker 3: You know, the cost of finance, the availability of finance is a massive factor. And then you start to think about other things, migration flows, wage growth, the general economic backdrop, the labour market, those sorts of things obviously matter a
85. 13:19Speaker 3: lot too. But over shorter periods of time, the main factor for most people is the interest rate. And, you know, if it's going up, I'll be a little bit more cautious.
86. 13:28Speaker 3: If it's going down, I'll feel a little bit more confident. So, yeah, I think that still was a big factor. And, I mean, interest rates right now are lower than where they were
87. 13:36Speaker 3: at the peak. Some mortgage rates were above 7% way back at that peak there, I think sort of middle of 24. Now people can still get a decent rate
88. 13:46Speaker 3: around sort of that 5% mark. It's gone up a little bit, obviously, in the past few months, but rates are lower than where they used to be. So that is– That is something that people will be benefiting from compared
89. 13:56Speaker 3: to two or three years ago. But, you know, we've got to face the fact right now that mortgage rates have been going up. So compared to three or four months ago, they will be a little bit more expensive. So,
90. 14:07Speaker 3: you know, when you factor that in, you factor in, I guess, still a reasonably uncertain economic environment, the unemployment rate still being a bit above normal. There's just these
91. 14:16Speaker 3: challenges for the market. And I think probably given the elections coming up, that is a factor for people Then we get into the Christmas period. January can be pretty
92. 14:25Speaker 3: quiet for the housing market too. It may be anybody looking for some kind of upturn is probably going to have to wait another sort of four, five, six months
93. 14:35Speaker 3: yet just because of those seasonal factors. So, yep, 2027, I suppose, is the year we'll look ahead to. I think 2026 is probably just going to remain just another reasonably subdued year.
94. 14:47Speaker 2: Or is it just going to be subdued well into 2027, maybe midpoint?
95. 14:51Speaker 3: Yeah, that's probably my working assumption at the moment because I think a really big factor here is that labour market and until people can start to feel a little bit more secure in their own job, we start to
96. 15:02Speaker 3: see some new hiring which starts to soak up some of that excess unemployment. Until all of that happens, I think there's a pretty strong chance the market does stay reasonably subdued. As I say, the volume of deals is
97. 15:14Speaker 3: still pretty reasonable. It's lower than where we thought it would be, but We're running at an annualized total of 89,000, 90,000 sales, which is a wee bit below the long-run average, but not too far. So, you know, their idea was
98. 15:25Speaker 3: being done, but it's a little bit less than what we thought it would be. As we've talked about, so the house price is still pretty flat. So it's not like the market's collapsing, but it's certainly not getting the
99. 15:36Speaker 3: recovery that some people might be looking for. And Yeah, until that labour market turns around, I think it's the status quo really. I think we do stay in this holding pattern until people can start to see some wage growth,
100. 15:46Speaker 3: feel a little bit more confident. And on current projections, whether you look at, say, the Reserve Bank projections, Treasury, some of the trading banks, not really seeing a marked pickup in hiring activity until perhaps into the middle of
101. 15:58Speaker 3: next year. So, yeah, it could be that it's, who knows, in a year's time when we get to sort of October 27th, Things look a little bit different, but it could be a sort of second half of the year
102. 16:09Speaker 3: next year rather than first half for sure.
103. 16:11Speaker 2: I'll speak to you then. Thank you so much for joining us, Kelvin.
104. 16:15Speaker 1: No worries.
105. 16:19Speaker 2: That's it for this episode of The Front Page. You can read more about today's stories and extensive news coverage
106. 16:26Speaker 2: at nzherald.co.nz. The Front Page is hosted and produced by me, Chelsea Daniels. Kane Dickey is our studio operator, Richard Martin,
107. 16:36Speaker 2: our producer and editor, and our executive producer is Jane Yee.
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