Rising listings: Construction's got some hurdles to jump

Guest Post by Tony Alexander

In recent months, the signs of improvement in the real estate market around New Zealand have led many people who had been holding off selling their property to finally bring it to the market. This is best seen in the listings data from realestate.co.nz.

At the end of 2022, the number of properties listed for sale stood just over 28,000. Come the middle of last year this fell to just under 25,000. Now the total is at an eight year high just under 29,000. This is an important development because it reinforces the comments I wrote in this column two weeks ago about falling house construction.

With plenty of existing properties to choose from, we can reasonably expect fewer people to sign up for new dwellings to be built. This won’t necessarily be a problem for the large group home builders who specialise in individual standalone houses.

But for developers of multi-unit complexes, the outlook has just darkened further

Anecdotal feedback from the multi-unit sector is that off-the-plan sales are proving difficult to achieve for developments not targeted at higher income earners in better suburbs. I can attest to a couple of large developers looking to undertake new marketing exercises for their products who have never contacted me before (I passed).

The implications of the increasing downside risks to multi-unit construction mainly lie in the future in the form of weaker-than-expected supply growth through 2025 and 2026. This will have price implications across those years and perhaps beyond. But for the moment the inability of as many projects to get off the ground will have its main impact of leaving more market space for sellers of existing properties to find a buyer.

The trouble is those buyers do not feel in any need to hurry their purchase

The monthly survey of real estate agents I undertake has just shown some large declines in the net proportions of agents saying that they are seeing more buyers coming through the doors and attending open homes and auctions.

The proportion of agents saying that buyers are displaying FOMO has retreated almost back to the levels from early-2022 to mid-2023 before the June quarter activity surge occurred. The feedback from agents is that this development has contributed to price growth slowing and stalling in some areas. As yet however the REINZ data have yet to show that with prices nationwide rising 1.1% in February.

Prices have risen just over 5% from their lows of mid-2023 led by Queenstown-Lakes at around 13%, and Wellington region at 7.5%. The Wellington situation reflects a relative shortage of listings and new consent issuance which for the moment are offsetting the negative of public sector redundancies.

My monthly real estate agent survey also shows that buyers are getting more concerned about their employment situation, and have lost some of their optimism about interest rates falling soon. Developments in interest rates are likely to be the key determinant of when real estate activity picks up to a good degree again.

For now there is no scope for the Reserve Bank to send an easing signal

Wages growth is still much too strong and business pricing plans too high. But the data on household spending are looking incredibly weak and at some stage the Reserve Bank will become concerned that it might be crunching the economy and eventually inflation too much.

Perhaps late this year they will adopt such a view. But for the next 3-6 months it looks like any cuts to mortgage rates will remain of the paltry 0.05% - 0.1% sizes undertaken by some banks recently.

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