July was a busy month for financial markets, with the Reserve Bank of New Zealand’s (RBNZ) Monetary Policy Statement (MPS) and Statistics New Zealand’s Consumer Price Index (CPI) data both due to inform decision-making.

Staying the status quo, the central bank kept the Official Cash Rate (OCR) on hold at 5.50 percent, which was of little surprise to the market but significantly encouraging for buyers and sellers of residential real estate.

Further reinforcing the theme of stabilisation, CPI figures tracked lower for the second consecutive month, providing cause for cautious optimism and injecting a small yet meaningful spring into the step of those waiting for conditions to improve before listing their properties for sale.

Throughout the residential sales landscape, transaction activity has picked up, with anecdotal evidence from Bayleys salespeople across the country showing more Kiwis are turning up for open homes, translating to increased competition for a smaller pool of listings.

This has supported auction activity as bidding activity and clearance rates for quality properties continue to improve.

While economic movements and political grandstanding have dominated the media headlines this month, the undeniable story for those in the residential market has been the supply-demand imbalance rearing its head once again.

New listings are near record lows, and sales activity is picking up, with commentators now anticipating a return to a more competitive environment, which has the potential to put pressure on average property values.

This is owing to several factors, including improved market sentiment, an easing in credit conditions – including relaxed loan-to-value ratio (LVR) requirements, the re-entry of buyers and sellers previously waiting for an improvement in market conditions, higher migration creating a sense of urgency, and residential construction activity tapering off from record highs.

While mortgage lending rates remain changeable, lower inflation readings and a stay in the OCR have offered homeowners a degree of confidence that mortgage lending rates will fall, which has continued to lure some back to the market.

At the same time, the general election deadline, with implications of changeable policy, is looming large in the psyche of buyers and sellers, some of whom anticipate a swift upswing in residential sales activity should we see a change in Government come October.

The month ahead is expected to continue in much the same vein, with more sellers returning to the fore as the spring selling season – traditionally the busiest on the residential real estate calendar – gets underway.

Bayleys salespeople across the country have already noted an increase in appraisal requests as sellers plan to effect a sale, so they can capitalise on replenishing supply and fresh new listings when they hit the market in September.

In-depth reports:

• As expected by financial markets nationwide, the RBNZ left the OCR unchanged during its July MPS. The central bank said it is confident that interest rates are at levels restrictive enough to see inflation tracking back down to three percent. Despite the no-change decision, which was completely factored into financial market pricing of fixed rate debt, some lenders have raised their fixed mortgage lending rates again. This has provided house hunters with a gentle reminder that market dynamics are constantly changing – and if it’s a move they seek, there’s no time like the present to put the wheels in motion.

• Research firm CoreLogic’s Monthly Housing Chart Pack shows residential sales figures are improving, with transactions across the country increasing 17 percent in the 12 months to June 2023. The data shows that new listings are slow to come to the market, which is helping to clear older listings that have taken longer to sell. If this trend continues, a supply shortage may encourage a greater degree of competition across the marketplace, likely placing upward pressure on values. Economists at CoreLogic say it’s a familiar story given the natural lag between sales and prices, and the second half of 2023 is expected to yield a housing upturn.

• New Zealand’s Consumer Price Index rose 1.1 percent in the June quarter and 6.0 percent over the past year, which was close to market expectations. The reading has eased for the second consecutive quarter, however, remains persistently high and a key area of concern for those in the market. Domestic (non-tradeable) inflation, led by food prices and housing costs, is elevated and remains a principal focus for the RBNZ. Should this not ease over the next few quarters, results could necessitate further rate rises to quell consumer demand.

Topical articles:

• Migration is playing a growing role in the housing market, according to the latest figures from Statistics New Zealand, which show purchases made by people on residence visas have steadily increased every year to 12.40 percent in the 12 months to June 2023. The data also indicates migrants are less likely to be sellers of residential property, suggesting they have the most significant impact on the demand side of the equation. The data supports anecdotal evidence that buyers feel more pressure to transact before prices rise due to heightened demand and a supply imbalance.

• Recent political rumblings suspect a National Government, if elected, would lift the foreign buyer ban on residential properties enacted by Labour in 2018. Suppose we see a change in Government come October, Bayleys Head of Insights, Data & Research, Chris Farhi, says the policy most likely to make waves would likely be National’s pledge to restore interest deductibility for landlords. This could encourage a tranche of investors back to the market. A National Government would also take the Bright-Line Test (a tax on capital gain accrued if a property is bought and sold within a specified timeframe) back from 10 years to two, and reintroduce 90 day notice period for tenants, while changing the automatic rollover of fixed-term tenancies into periodic agreements. These confirmed policies are expected to make it more attractive for buyers to invest in residential property, therefore increasing demand, with an upward effect on values.

• Businesses and consumers are feeling less pessimistic about the economy, reflected in the recent ANZ-Roy Morgan Consumer Confidence Index reading, which has risen to its highest read since January 2022. Given that consumer confidence has a significant influence on the momentum of asset markets, this bodes well for residential sales activity, particularly as sentiment is projected to continue to lift with greater stabilisation of mortgage lending rates. Despite this, cost of living pressure is a big concern for many Kiwis, which will likely keep a lid on how far the housing market can grow in the coming two years.

• A research note from the National Australia Bank says the luxury property market remains largely unaffected by the monetary policy tightening cycle, evidenced by record prices being achieved for prestige properties. Commentators have made comparisons between Australia’s recent housing market trajectory, noting that New Zealand could follow suit, with a scarcity of supply at the upper end of the market and an emphasis on migration attracting more significant foreign investment. At the same time, geopolitical tensions in other regions paint Oceania as a relative safe haven, which will likely continue adding to demand for housing both at home and across the ditch.

• Comparative analysis between sellers’ asking prices on realestate.co.nz and REINZ’s unconditional sales data shows the gap between buyer and seller expectations has narrowed to just 1.7 percent. In the year to May 2023, the average asking price declined by $90,526 or 9.40 percent. Conversely, REINZ’s median sale price over the same period regressed by $60,000 or 7.10%. The realignment in expectations has supported an uptick in recent residential transaction activity, which is seeing older listings that have spent longer on the market change hands, reflecting a recalibration in sellers’ understanding of market dynamics.