Prendos Valuations Director and Registered Valuer Matthew Edginton takes a deep dive into the direction the housing market is heading in the second half of 2024.
The housing market recovery that many (myself included) predicted for the first half of this year hasn’t panned out. Prices in many areas are getting very close to the lows from around May 2023, in what has turned out to be a “double dip” downturn. Whether or not we take out last year’s lows and continue on this downward pricing trajectory obviously remains to be seen.
Fortunately, there are reasons to believe that won’t happen. There are very (and I’m talking literally one month of data) early signs that this second downturn could be bottoming out. It’s nothing to get too excited over and one month could easily prove to be just a blip, but there are a couple of leading indicators that suggest prices might be ready to stop going down.
Firstly, some context on where we are right now. The first half of 2023 was bad, but we ended the year on a bit of a flourish, leading to a mini-peak in house prices in February this year. It was during that brief upturn that myself and many others “boldly” predicted the downturn was over. Not such a great prediction, as since then, prices have fallen for five months in a row. Auckland has been leading the charge, falling by 4.4% since February (almost 1% per month), with Tauranga down 3.5% and Wellington down 2.9%.
How do current prices compare to the peak of the market in November 2021?
Wider Auckland is down just over 20%, Tauranga around 17% and Wellington the worst performer, down 21%. Well done to Hamilton and Christchurch, down “only” 11% and 7% respectively. So, if it has felt bad out there, it’s because it has been.
Some of these numbers make the 2008 GFC induced market look like happy days. For context, the Auckland market fell around 13% in 2008. I’m not saying the current economy is anything like 2008 and we all hope it doesn’t even get close to that point, but there is no denying the current period has been the worst ever for house prices.
Of course, we were coming down from a massively inflated period of out of control growth through 2021. And let’s not forget current prices are still up from pre-Covid levels by around 19% nationwide. Auckland and Wellington are up 10-11%, Hamilton and Tauranga by around 20% and Christchurch crushing it, up 40% from pre-Covid.
Back to today and those positive signs. Optimism around falling mortgage rates has seen a bit of a lift in activity. Auction clearance rates have been slowly ticking up for a few weeks now, having been pretty dire through May and June. For the first time this year, agents are reporting month on month improvement in open home numbers. There may even be some investors around, for the first time since 2021, although these will still largely be those looking to scoop up distressed sales at bargain prices. Listing volumes are also on the way down, which is a big support for prices. There were just too many properties for sale earlier in the year, putting the few buyers that were out there in a great position to negotiate prices lower. It’s still very much a “buyer’s market”, but as listings drop, it will not be to the same extent.
What about interest rates?
No discussion on the housing market would be complete without mentioning interest rates. I can’t quite claim victory yet, but one thing I will be proven right on is that the OCR will be cut a lot earlier and a lot faster than the Reserve Bank has told us. The major banks are now split between calling for an immediate rate cut in August this year, or waiting for November. This is a quick turnaround from just a month ago, where consensus was for no changes this year and the first cut in February next. Up until recently, the RBNZ’s “official” position was no changes until the middle of next year, which was ridiculous and has zero chance of playing out.
If you follow international markets, you would have noticed some extreme volatility in rates this week. International interest rates remaining high was one of the last remaining arguments for our rates to stay elevated. But that argument is over as of this week, as interest rates around the world have capitulated and larger central banks than ours bring forward their timeline for cuts.
So, with interest rates falling and some improved activity in the market, is it time to call another turnaround? Maybe. Unfortunately, there is not much to get excited about in the wider economy and unemployment is set to continue rising, so it’s hard to see a strong recovery taking place in the next 12 months. I do think prices are set to at least stop going down. Balancing the supply/demand situation and the overwhelming buyer’s market, plus confidence around interest rates should put the market in better balance for the rest of the year.
The Brightline test has been cut back to two years, interest deductibility is being reinstated and tenancy laws are being adjusted to make it easier to find good tenants. The message to investors is clear – residential property investment is safe again. On a related note, LVRs are set to loosen and credit rules have been relaxed, so it’s becoming easier to get approved for borrowing.
If you need a property valuation then please feel free to fill in the form below, and have us call you back.