The residential real estate market is turning upward and the signs are fairly clear to see from my coalface survey of real estate agents around the country. In my latest survey undertaken in the closing days of June a net 41% of agents said that they are seeing more people showing up at open homes. This is the strongest result since February 2021 and well up from a net 48% in November saying they were seeing fewer people.
Similarly, a net 18% have said they are seeing more people attending auctions.
This is also the strongest result since just before the return of LVRs early in 2021 and introduction of a change in the tax regime for property investors. The result is important because it means people are moving beyond just kicking the tyres to committing money to getting assessments done which can leave them in a position to bid.
Other results include a net 56% of agents seeing more first home buyers
However, a net 15% continue to say that they are seeing fewer investors. While this is the least bad result since February 2021 it is unsurprising when we consider the high level of interest rates and the removal of interest expense tax deductibility through stages over time.
19% of agents now say that they can see buyers displaying FOMO – a fear of missing out. This is a fairly low reading still but it is well up from outcomes between 4% and 9% from early 2021 until May of this year. We know that FOMO can be a very strong motivator for people and at the same time as it is rising FOOP, the fear of over-paying, is falling away.
The market dynamics are shifting and for many months in this column I have highlighted the important factors which would eventually shine through and first produce an end to the period of decline in sales and prices, and then contribute to an upturn. So far that upturn is fairly mild and we probably won’t be able to truly say that the market is strong until next year when interest rates are falling.
But before then prices and sales are likely to creep higher in response to factors including a falling stock of listings – now down 14% from the peak in December – booming net immigration now at 72,300 for the past year, an end to interest rates going up (surely we are there now), and improving access to credit.
Credit is flowing more freely as banks compete for business by easing some of their rules rather than discounting their interest rates. But there have also been changes to LVRs along with valuable tweaking of the changes made to the Consumer Credit Contracts and Finance Act.
Is it likely that the Reserve Bank will look to push back against the turning of the housing market by raising interest rates further or re-tightening lending rules? No. Their official cash rate is set at a level which they adjudge will get inflation within a 1% - 3% range in about 18 months time and things seem well on track for that to happen.
Inflation expectations and business pricing plans are easing
The labour market tightness is being greatly alleviated by the migration boom. Next year debt to income ratio rules will be introduced. But the aim of these rules and those like the LVRs is to make sure bank mortgage lending is not risky. That is, should a strong economic or housing market come along the rise in debt and debt servicing burdens will not have potential to throw the economy into deep recession or cause a severe decline in house prices.
Neither outcome seems likely in the near future now that house prices are over 18% down from their peaks and bank risky lending has been heavily restricted since early-2021.
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