New Zealand housing market faces six to nine more months of stagnation, Cotality warns

HouGarden New Zealand, 24 September — Cotality, New Zealand's property data firm formerly known as CoreLogic NZ, released figures showing 6,175 residential properties changed hands in August, a year-on-year fall of 11.6 percent. That was the eighth consecutive month in which sales ran below the same period a year earlier.

Kelvin Davidson, Cotality's chief property economist, noted that the earlier monthly declines this year had been relatively modest. 'Each month this year has been lower than the same month last year, but the falls haven't been massive in those previous months from January to July, sort of 4 percent to 5 percent,' he said. 'We saw the August number was down almost 12 percent. It does stand out a little bit.'

Davidson said there was no clear single cause for the steeper August drop. 'It feels as if it might have been a timing issue and we might actually see September's number is not quite as weak. But then September is probably going to be affected by renewed fuel price increases and a lack of confidence,' he said.

On an annualised basis, sales were running at approximately 89,000 transactions a year — below the long-run average but well above the roughly 65,000 recorded in each of 2022 and 2023.

Nationwide property values fell 1.3 percent over the three months to August and 1.0 percent over the past year. Values remain 18 percent below their peak. Those three figures measure different time horizons and should not be conflated: the three-month figure reflects the most recent price direction, the one-year figure a broader trend, and the peak-to-present gap the scale of the overall correction since the market's highs.

Christchurch was the only main centre to buck the national trend, recording a 0.2 percent rise over the three-month period.

The stock of properties listed for sale was already high, Davidson said, and was likely to grow further as the spring selling season gathered pace. 'It will be interesting to see what happens in September if we don't get such a bounce back and it extends that run of caution,' he said.

On the demand side, investors currently account for about 23 percent of the market, slightly below their long-term average share. First-home buyers, by contrast, are at record-high participation levels — a shift that reflects the relative absence of investors from the market in recent years.

A significant policy development emerged this week when the Labour Party announced it would not reintroduce a ban on interest deductibility for residential property investors if it wins the next election. Under the previous Labour government, the ability for landlords to deduct mortgage interest as a business expense against rental income was phased out progressively. The current National-led government reversed that policy when it took office. Labour's announcement this week means the prospect of a further reversal has now been taken off the table — though this is a party commitment, not enacted legislation.

Davidson said the removal of that uncertainty could encourage some investors who had been sitting on the sidelines. 'I was hearing on the ground quite a bit that investors who were holding off were doing so largely because they were unsure about interest deductibility changes — if Labour got into power and phased it out again, it would have been quite a big hit to their cash flow,' he said. 'Now that uncertainty is gone, it will be interesting to see what happens. It may set the scene for a bit of an investor comeback.'

He was careful to temper expectations. 'I don't expect a rush of investment activity. There is still uncertainty about job security, rents are still fairly flat, operational costs have gone up with council rates and home insurance — and capital gains tax is on the radar,' Davidson said. That last reference reflects a concern among some investors that a capital gains tax remains within the scope of future policy debate, rather than any signal that such a tax is imminent.

Davidson identified the labour market, rather than mortgage rates, as the key determinant of housing market confidence. 'People can withstand higher mortgage rates if they see job creation and they see employment security and they feel as if, if they lost their job, they would easily find a new one,' he said. 'The labour market has a really big role to play here.'

On rents, Davidson said conditions were flat or marginally rising, with a sharp increase considered unlikely in the near term.