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Realty Perspective – June 2024

Realty Perspective – June 2024

A Year In Review 

There is finally some good news for homeowners. Although 2024 is turning into a tough economic year with consumer spending very low due to the impact of high interest rates, the housing market has stabilized with good buyer activity across all price ranges. Looking ahead to the second half of 2024 and beyond, things are looking up for those wanting to sell their house or investments.

The influence of media

By early 2023, property sales had dropped significantly; the media was reporting house prices falling by 15-20%, buyers were sitting on the fence waiting for the property prices to fall further and sellers were pulling their hair out.

While these percentages might have been correct at the time, I have often stressed the importance of looking at trends as opposed to just a static snapshot based on a small selection of data. 

Statistic vs Trends

Only when we look at statistics over a longer period of time will we be able to assess what the relevant price movements are and what it means to homeowners.  

The media loves provoking headlines. Reporting on big movements in house prices sells more “newspapers” and  often articles are referring to statistics that suggest an exciting change in the market, regardless of whether that is an actual trend. I’ll provide an example below to illustrate how statistics can paint a completely inaccurate picture and the importance of looking for trends:

The graph below shows the “average house prices” in orange and “median house prices” in blue for each month.  

Should you compare November 2022 with November 2023, the median price change suggests a price decrease of $77k (-11%), whilst the average price suggests an increase over the same period of $12k (+2%). Neither accurately reflects the market trend over that period which was a decrease of approx. 3-4%.

House prices are now roughly the same as they were at the start of 2021. If you look at market trends, this would indicate a decrease of roughly 10-15% from the peak in 2022.

 

Market Trends in the last 12 months

In the latter half of 2023 and into early 2024, we’ve seen a gradual recovery in prices and increased activity from buyers. Buyers are more active but are still taking their time to find the right home. The average time to sell has improved significantly, now at 34 days compared to 61 days last year. Despite this improvement, many properties sit on the market with little or no activity, which underscores the need for effective marketing and positioning. 

Brightline, interest deductibility & AirBnB change

The government is busy undoing changes made by the previous government. From 1 July 2024, the brightline period for all properties changes to 2 years, regardless of when the property was purchased. This means many properties bought between July 2019 and July 2022 will no longer attract capital gains tax from 1 July 2024 when they sell.
The second change welcomed by investors is the ability to deduct interest as a cost again. For this financial year it is at 80%, and from next financial year onwards it will be back at 100%.
Finally, there are changes coming to AirBnB income with regards to GST and on a local government level, how rates are applied. Some of these have not been finalised yet, but if you are using your property as an AirBnB, make sure you keep an eye on developments in this area and talk to your accountant.

What to Expect in the coming year

For the rest of 2024, expect a balanced market, where neither buyers nor sellers hold a clear advantage. Demand from buyers will remain steady, with a slight increase in prices and activity, thanks to more favourable tax conditions for investors.

House Prices beyond 2024

There are many variables at play and looking at historic cycles, we will likely be in a balanced market for a few years to come with stable prices.Interestingly, looking at the major banks’ forecasts, their opinions are startlingly different as you can see on the right. There are a number of factors that the economists take into account when predicting house price increases, and the weight they place onto any one specific factor explains the difference in predictions. 

ASB for example is relying heavily on the trend between net migration and house prices, which over the years has followed each other closely. If many more people come into NZ, it puts pressure on housing, and house prices go up.
This combined with the decrease in building consents leads them to believe prices may increase over the next two years by 26.8%. It is important to note that they refer to this prediction based on the assumption that this pattern between net migration and house prices will continue.

Hielke’s prediction

here are a few factors besides positive migration that I believe will shape the market moving forward:

  • Debt-To-Income (DTI) Restrictions
    The reserve bank has introduced DTI restrictions this year.
  • Interest rates
    Whilst they are expected to come down, they are still relatively high compared to what people are used to from a few years ago. Although most people by now would have had their low fixed rates come to an end, combined with inflation and greater unemployment, we may not have seen the end of the financial pressure for some people.
  • Government intervention
    The government wants to ease the house buying and lending processes, but at the same time, they won’t likely want to see another hike in house prices. At the moment, NZ housing affordability is already rated amongst the worst in the world.

Historically we have seen the market flooded with properties and an increasing inventory of properties for sale, however, I don’t think this will likely happen. I expect prices to increase slightly (maybe 5% per year) for the next 2 or 3 years before we see some greater house price increases again.  
If you’re living in a house you’d like to sell, now is as good a time as any. For investors, holding on to property in the short term won’t likely give you any capital gain benefits (unless it is for tax purposes), however, if you hold on to property long term (5+ years), you’ll enjoy the benefits of the capital gains during the next up-cycle.

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