Georgina Bond
A hike in interest rates has dealt the housing market another blow, with rising borrowing costs extending a slowdown that has seen property sales fall for eight months in a row.
Sales dropped 11.6% year-on-year in August to 6,175 deals, according to property data company Cotality – a downturn that was already showing up on the ground as failed deals, more conditional offers and buyers increasingly prepared to walk away.
The latest data point to an interesting contrast emerging in the market.
First-home buyers are taking a record share of purchases and benefiting from improved affordability.
But existing homeowners are still reluctant to move, helping keep overall sales activity weak despite conditions becoming more favourable for some buyers.
Cotality chief property economist Kelvin Davidson says recent hikes in borrowing costs have created a fresh challenge for a market already struggling to gain momentum.
“First home buyers remain a key presence in the property market, accounting for a combined 29.1% of purchases across July and August, hovering at record highs,” he says.
“At the same time, movers remain relatively subdued, which is one reason why sales activity remains weak even though affordability has improved.”
High listing levels also give active buyers plenty of choice and little reason to rush.
So the market is in something of a stand-off.
“This high level of choice is giving buyers a lot of the pricing power,” Davidson says.
But there are limits, with many vendors not under enough financial pressure to accept significantly lower prices.
“Most vendors won’t be in a forced-selling position, so prices aren’t collapsing,” he says.
Instead, values are continuing to edge lower.
The Cotality Home Value Index dipped by another 0.4% in August, with Auckland and Wellington still sluggish, but Christchurch more resilient.
Davidson says the labour market could ultimately be important in getting things moving again.
“All in all, the housing market remains subdued and it’s difficult to see what changes this holding pattern in the near term,” he says.
“The labour market may hold the key. Rising employment and better job security may be required before we could expect any kind of growth in property values, although some investors will be buoyed by Labour’s announcement that they’ll keep interest deductibility.”
But the prolonged weakness has also brought an upside for those in a position to buy.
“Of course, this weak patch has seen affordability improve significantly, so there are always two sides to the coin.”
0 Comments