Private property issue #39 - Bottom of the housing market

Private Property – our weekly newsletter that gives you insights into what's happening in the NZ property market. Written by managing director Andrew Nicol. Sign up to receive this in your inbox every Thursday.

If you’re looking for a sign that the bottom of the housing market is nearing – here it is.

The Reserve Bank announced that they would increase the OCR from 3.5 to 4.25% yesterday.

Today, much of the media is writing about the central bank’s inflation and interest rate forecasts … and we’ll cover this in next week’s Private Property too.

But more interesting were the bank’s new house price forecasts.

Much of the media coverage focussed on the Reserve Bank’s expectation that house prices would fall 18.9% compared to November’s peak.

While that sounds scary, what’s not mentioned is that two-thirds of these falls have already happened, according to Reserve Bank data.

In other words, we’ve only got a third left to go.

And according to those same forecasts, the large house price falls we saw in the last 12 months won’t be repeated.

House price falls are expected to slow … and the market’s momentum is expected to improve.

To be clear, that doesn’t mean we’re at the bottom of the market. Yet.

But, it is a sign that the trough is nearing and that the big house price falls (in this downturn) have been and gone.

What’s more, data released last week from the Real Estate Institute of New Zealand (REINZ) backs this up.

What’s the sales data show?

Last week REINZ released its latest sales data.

Bear in mind this is based on what is ACTUALLY happening in the market. This data is not a forecast.

After house prices continuously fell for 7 months, the market increased in value throughout October.

To be fair, the increase was minuscule. Just 0.2%.

But that’s not my point. Look at what’s happened over the last 4 months. Every single month, the momentum of the market has improved.

The house price falls have slowed, and we’re moving towards a more stable market.

This is a big deal.

Does this mean house prices are about to go up?

No, not quite.

Before you start popping the champagne, last month's data doesn’t mean we are straight away going to see house prices rising again.

Nor does it mean that the market has bottomed out.

Data goes up and down. And the 0.2% increase is so slight … a 0.2% decrease next month could wipe it out.

And it’s worth noting that:

1. The data represents sales made before interest rates went up to 6%. Higher interest rates could cause further declines over the next few months.

1. While first-home buyers were starting to re-emerge, there has been a slight pullback over the last month.

1. While yesterday’s OCR increase was not surprising, the aggressive language from the Reserve Bank will scare some buyers off.

So, could house prices go up or down by another 3-5 ish% in the next few months? Sure they could.

But the key message here is we are out of the woods of those significant declines. And we are nearing the end of falling house prices.

You won’t see this reported in Stuff or the Herald

You won’t see journalists talk about a turn in the market until it's already happened.

That’s because journalists tend to focus on annual changes in the market rather than monthly or quarterly changes.

And we may not see a lift in annual house prices until 12 months after we hit the bottom of the market.

So if you’re hoping to “time the market”, don’t expect to do it by reading articles written by under-the-pump journalists.

So, for everyone saying: “I want to wait for the bottom of the market to buy a property”, ... get ready. This is it.

We’re almost there.