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Buried in the depths of May’s OCR statement by the Reserve Bank was small glimmer of positive news for the housing market.
That small glimmer was: "Annual house price inflation is assumed to return gradually to its long-run average rate of around 5 percent."
This was accompanied by a graph projecting prices rising gradually through 2024 and 2025, and by 2026 nudging ahead of peak prices in 2021.
A small glimmer indeed, but a welcome one for a market seeking to find some consistent direction after some three years of stop/start trading.
The OCR report summary of the current state of the housing market as:
"Apart from high rental inflation, demand in the housing market has remained subdued. Nationwide house prices have increased only modestly over the past year, after declining roughly 15 percent from their November 2021 peak. Listings have increased, but sales volumes have declined, resulting in a larger stock of houses on the market."
My interpretation of the Reserve Bank’s position is it sees no immediate change to the current state of the housing market, which is becalmed in a state of low sales with prices moving within a tight band, with the most likely future direction being upward.
We still have a winter to negotiate but come Spring, the trading environment has the potential to become more positive.
Compare this with the Reserve Bank’s overall position on the economy of: “Monetary policy needs to remain restrictive to ensure inflation returns to target within a reasonable timeframe”.
Elsewhere, Finance Minister Nicola Willis’ media summary of the economic position was: “We are in a very painful spot for many people”.
My major take-outs of the present situation in relation to housing are:
- It’s unlikely there will be any movements in mortgage interest rates until the third quarter of this year and what we have is what new and existing mortgage holders are going to have to manage through winter and early spring.
- When they do start occurring it will give business confidence a lift, and that will then start to flow into the housing market.
- Although it is a buyers’ market, the majority of economists are not expecting prices to retreat markedly from current levels.
- There will be bargains to be had, but buyers waiting for prices to retreat or who hold out for the ultimate steal, may well be disappointed.
- Vendors who are waiting to recoup the ‘paper losses’ from the 2021 peak, or for the next upward surge in prices before listing, may have a few more years to wait. For these vendors the reality of the market is: A house in only worth what someone else will pay – not your purchase price, its CV or a market valuation.
Perhaps leading property data, information and analytics company CoreLogic’s March 2024 quarterly Pain & Gain Report will give undecided vendors and buyers some confidence to move forward with their decision making.
It states that 93% of all owners who sold their property in the first three months of this year made a gross gain on their purchase price, and the median gain on the sale was a little above $300,000.
The median period of ownership for these vendors was 8.7 years.
Of the 7% of owners who made a loss on the sale of their property in the first quarter of 2024, their median period of ownership was 2.4 years. It meant they purchased at the very height of property prices in the final quarter of 2021.
The report also notes that distressed sales in the first quarter of 2024 remained “the exception, not the norm”.
CoreLogic’s data supports that old property adage, that time takes the relevance out of price, and that if you hold a property for 7 to 8 years you are likely to make a financial gain.