After the policy changes, is now a good time for buyers to enter the market? Listings surge while house prices remain low! A guide to the current market
Real estate agents and market analysts are divided over the change. Some believe it will bring a flood of properties onto the market, particularly from investors who bought at low interest rates during the 2020 market peak and now want to sell to limit their losses in a high-interest-rate environment.
Several major property policies took effect on 1 July, including a reduction in the bright-line period from 10 years to 2 years, the introduction of debt-to-income (DTI) lending restrictions and an easing of loan-to-value ratio (LVR) rules. Experts predict these policies will affect different groups in the market at different stages, with the bright-line change having an immediate impact by prompting many investors to sell. But is the market really unfolding as predicted? With more properties available, is now a good time for buyers to enter the market? Let’s look at the figures.
Could the bright-line test continue to increase listings?
From 1 July, the bright-line test will be eased from the current 10 years, or 5 years for new builds, to two years. This means owners selling properties on or after 1 July will only need to have held them for at least two years to avoid being taxed. The change is expected to increase listings, as some investors under financial pressure from higher interest rates and insurance premiums may use the opportunity to sell tax-free.
Real estate agents and market analysts are divided over the change. Some believe it will bring a flood of properties onto the market, particularly from investors who bought at low interest rates during the 2020 market peak and now want to sell to limit their losses in a high-interest-rate environment. Others believe weak demand and economic instability will prevent a wave of selling, with house price growth remaining subdued until market conditions improve. Even with more listings, there may not be enough buyers to absorb the additional properties, leading some investors to hold on and wait for more favourable market conditions.
According to O neRoof’s reporting, Opes Partners’ resident economist Ed McKnight expects the bright-line rule change to substantially increase listings. “Once the bright-line test changes, we can expect more properties on the market. Even if house prices have fallen, if you bought in 2020, you may already have made NZ$200,000.”
“Some investors bought properties when interest rates were low and now want to sell to avoid excessive pressure from high rates. However, if they sell before the bright-line test changes, they may have to pay NZ$75,000 in tax. Once the test changes, some will be able to sell these properties tax-free. So I think we will see a large number of properties listed, keeping house price growth subdued in the second half of 2024.”
McKnight said that, because only a limited number of properties would benefit from the bright-line change, house prices could rise after summer, coinciding with his expected timing for interest rate cuts.
Industry figures believe the impact of high interest rates remains the biggest reason many small investors are selling rental properties.
Housing stock reaches a high, with a clear buyer’s market emerging
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House prices continue to fall
With ample listings and less competition, downward price pressure has spread across all market segments. The latest QV House Price Index showed average residential property values nationwide fell 0.9% in the three months to June, bringing the average value to NZ$916,285. Auckland house prices fell sharply by 2.6% over the quarter, recording five consecutive months of negative growth. Tauranga, Palmerston North and Wellington followed, with declines of 1.3%, 1.3% and 1.2% respectively.
QV operations manager James Wilson said: “Many residential property sales now depend on other sales, creating a chain reaction that extends selling periods or causes deals to fall through. Sellers are also having to adjust their price expectations in what is increasingly a buyer’s market.”
Wilson expected house prices to fall further over the coming months. He said: “There is currently nothing to suggest house prices will rise again in the near future, while there are various signs they will remain flat or fall slightly.”
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Auckland housing stock reaches a high
Figures from Auckland’s largest real estate agency, Barfoot & Thompson, showed its June sales reached a 14-year low, with just 681 residential properties sold, down 26% from May. Meanwhile, stock levels reached a 14-year high, with 5736 properties available for sale at the end of June, up 34% from June last year. New listings eased slightly to 1506, but this was still the highest June total since 2020.
Despite the decline in sales volumes, sale prices did not fall sharply. June’s median sale price was NZ$1,020,000, up from April and May but below March’s NZ$1,050,000. The average sale price was NZ$1,236,336, the highest since December 2021, largely because of a higher proportion of sales at the upper end of the market.
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Advice for buyers
Many people have heard Warren Buffett’s famous saying: “Be greedy when others are fearful and fearful when others are greedy.” For many buyers, the best time to purchase a home is when the market slows. When prices are falling, demand is weak and others are fearful, it takes courage to go against the tide.
Admittedly, today’s difficult economic conditions make it hard for prospective buyers to save enough for a deposit, while obtaining and repaying a mortgage also brings considerable pressure. Mainstream interest rates are currently around 7% and domestic inflation remains high, leaving many buyers on the sidelines until conditions improve. But if you prefer less competition, a wider choice of properties and more room to negotiate, now is a good time to buy.
For those ready to buy, a substantial increase in listings and continuing price falls mean greater negotiating power. The market is already a buyer’s market, but high interest rates and job uncertainty are keeping some buyers out. If your finances allow, entering the market now can indeed help you avoid many difficulties.