Three signs that the market is turning

by Ashley Church

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Apr 17, 2023

It’s been a tough sixteen months for kiwi homeowners and buyers. Ever since the double-whammy of the moronic changes to the Consumer Credit Finance Act, introduced in December 2021, and the dramatic increases in mortgage interest rates which started in early 2022, the property market has taken hit after hit and we’ve seen house prices continue to drop in many parts of the country.

The effect of this has been to severely dent confidence with the volume of house sales plunging around the nation as buyers have either struggled to secure mortgage finance or have decided to stand back and see where house prices will settle.

But are there signs that the market is now starting to turn?

Maybe.

Picking a precise point at which the market ‘bottoms out’ is a fool’s game and it has always been my view that those who are looking at the medium to long term should ignore short-term fluctuations and buy and sell based on their longer-term objectives rather than trying to capture illusory gains by ‘picking the bottom’. However, there are certainly signs that the market is at, or near, a turning point:

1. Mortgage interest rates appear to have peaked

There’s no doubt that the single biggest impediment to market confidence over the past 16 months has been the relentless increase in mortgage interest rates. Buyers are concerned that they’ll purchase a home, only to see the cost of their mortgage increasing over time. For this reason, over the past few months I’ve been repeating my view that, for market confidence to be restored, mortgage interest rates don’t need to come down straight away – we just want to have confidence that they won’t keep going up. To date, these increases have been caused by the Reserve Bank aggressively and repeatedly increasing the Official Cash Rate in an attempt to get inflation under control by mopping up excess consumer spending – but while we don’t yet know if inflation is under control, there are growing signs that the banks are less receptive to the prompts by the Reserve Bank with none of them increasing fixed mortgage interest rates in the wake of the .5% increase in the OCR on February 22. Does this mean rates are now at their peak? Watch this space.

2. Mortgage lending is recovering

Readers will remember the chilling effect of the Governments changes to the CCCFA in December 2021, and the impact these changes had on mortgage lending – which dropped dramatically over previous levels over the first half of 2022. However, by November of last year lending appears to have been recovering and, while lending in January was down (probably seasonably), February lending was sharply up – particularly by first home buyers who borrowed around 70 percent of what they borrowed in February 2021, when the market was on fire. These changes are driven by more certainty around interest rates and the commercial pressure, on banks, to increase their lending levels.

3. House prices are close to their bottom

There’s currently a lot of hyperbole and scaremongering about house price declines but the reality isn’t nearly as bad as you’re being led to believe. According to QV, median house prices across the country have fallen 10.5 percent since March of 2022 – but are still hugely up on where they were prior to the pandemic and nowhere near a decline that would fit the definition of a ‘market crash’. More importantly, most commentators are now reporting that monthly house price drops are declining and expect the market to have fully settled by the middle of this year.

While you won’t be popping the champagne on these indicators, quite yet, they’re unmistakable signs that a turn in the market is either here, or not far away.

Add to that a sharp increase in immigration onflows, reasonable certainty around job security, and a general lift in national confidence since the departure of Jacinda Ardern and it’s not hard to see a light at the end of what has proved to be a long tunnel.

As I’ve said, many times, this strange period of history was never going to be forever – and the medium trajectory of the property market, as always, is up.

DISCLAIMER: The opinions expressed in this article are the author’s and shouldn’t be taken as financial advice, or a recommendation of any financial product.

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