In a self-fulfilling prophecy, the last 18 months have seen residential sales activity hampered by expectations of economic uncertainty and consumer pessimism. But now, with a rebound in sales and slightly brighter economic prospects, more Kiwis are feeling the urge to make their move.

SALES ACTIVITY

In each of the three months to June 2023, the number of homes for sale across New Zealand has declined consecutively - primarily owing to a marginal, yet meaningful, improvement in residential sales activity.

Transaction activity for the 12 months to June from Real Estate Institute of New Zealand (REINZ) shows house sales are up 14.9 percent nationwide, demonstrating that while the market is far from full speed, buyers and sellers are indeed returning to the front lines.

Analysis from interest.co.nz shows that the number of residential sales expressed as a percentage of new listings (as noted by property platform realestate.co.nz) has increased 16 percent year-on-year in June to 77 percent.

While the number of new listings is expected to climb in spring – traditionally one of the busiest periods on the real estate calendar – they have been declining consecutively on realestate.co.nz and are now at the lowest level since February 2022.

This takes us right back to supply levels not seen since the start of the pandemic, when demand for homes significantly outstripped supply, contributing to a rapid rise in average sale values across the country.

Commentators are already voicing opinions that this is driving a sense of urgency across the market as sellers look to capitalise on greater demand and buyers haste to catch a deal before values take off once again.

WHAT’S DRIVING THE CHANGE?

At the end of May, the Reserve Bank of New Zealand (RBNZ) voiced expectations that the May 24th raise to the Official Cash Rate (OCR) would be the last, giving cause for cautious optimism and some light at the end of an uncertain financial tunnel for many.

Providing the most significant impetus by way of confidence, Kiwis have gained clarity on interest rate rises and no longer expect they will spiral wildly out of control.

This easing in monetary policy came at the same time the central bank relaxed loan-to-value ratio (LVR) restrictions to allow a greater proportion of lending to highly geared borrowers.

Furthermore, restrictive credit policy was also unwound, giving borrowers more buying power through less stringent credit assessments.

In the face of higher living costs, many Kiwis are managing well thanks to a persistently strong employment market and demand for skills.

In fact, to relieve capacity constraints, the Government has enacted a more accommodating immigration policy, delivering a 1.5 percent increase to the population in the 12 months to May 2023.

While designed to support economic productivity, the policies have the dual impact of raising consumer concerns about housing, given more people in one place put pressure on the physical need for homes, further underscoring the sense of urgency buyers feel about acting now.

WHAT LIES AHEAD?

With residential values well-documented as a runaway freight train at their cyclical peaks, policymakers have sought for years to slow the value growth rate and bring affordability back in line with some of our global counterparts.

The most potent counteragent has been the current economic uncertainty and rapidly rising mortgage lending rates.

While there’s broad consensus New Zealanders won’t see inflation, the OCR or mortgage lending rates fall significantly any time within the next 24 months, each has now settled in at an elevated level.

This offers a more certain path forward for buyers and sellers who have previously put off best-laid plans until some degree of positivity re-entered the market psyche.

As warmer weather waits just around the bend, Bayleys salespeople across the country have picked the next few months as a sweet spot for market activity.

Given the recent jump in buyer sentiment, more sellers are expected at the coalface, providing a welcome stack of fresh listings, and greater potential for upward value growth.

This mild improvement in residential sales activity is supported by murky waters at year-end, with stubbornly high debt servicing levels, geopolitical stress exacerbating lingering tensions and a general election in October likely to change the policy goalposts -meaning right now just could be the very best time to make a move in 2023.