The Real Estate sector enters 2025 in a somewhat difficult position.
Stock – properties for sale – is at a 10 year high (8,904 properties). With fresh stock coming onto the market daily the concern is about the ‘overhang’ – those properties that have been sitting on the market for several months and remain unsold. Fresh stock is always of interest to potential buyers.
Property sales are up but prices continue to fall – though that decline is slowing. Corelogic Home Value Index shows a cumulative decline of 4.1% over the 6 months March to August 24 but of only 0.4% since then.
The national median house price now stands at $803,819 which is 17.5% lower than in 2021/2022.
It is essential that property sales remain at a high level in order to reduce the ‘overhang’. At that pint when supply and demand are more in sync it is predicted that we will see an increase in property sales values.
Corelogic also comment that several factors will weigh on investor sentiment in the near term.
Tax rules have become more favourable for mortgaged investors. Lower interest rates will assist to reduce the level of ‘top-up’ required from other income that is typically required to sustain rental property cashflows.
Debt-to-income ratios could also impact on investors. Corelogic anticipates increased activity from investors during 2025 but also sees growth in ‘first home’ buyers. The roll-on effect of first buyers is that they tend to buy existing homes that the nenables those owners to move onto their next purchase
Articles
- We came across an interesting article related to investors. It focussed on the need for investors to factor in lower levels of capital gains in the future. Investors have made up 24% of buyers in January 25 and it is anticipated that this may grow even higher. We found the warning somewhat surprising as it has been some time since capital gains played a significant role within the economics of rental investment – at least short-term capital gains. However experienced investors know and appreciate that the sector is ‘cyclical’ in that the rules regularly change and peaks and lows are a recurring factor.
- We read about specific house sales where properties are going for very high prices. What we may not appreciate is that these properties form but a small part of the ‘luxury’ property sector. Within that sector (properties worth $5 million or more) sales have fallen by 50% 2024 vs 2021 and prices have come down as well.——Barfoot and Thompson advise that their average selling price in January fell by $133,000.
Rateable Values This is going to be interesting going forward.
New rateable values in Wellington reveal a startling 24% drop since 2021. It has hit every suburb with declines varying between 12.1% and 29.3%. It would be naïve to think this will not also be the case in other locations. The impact. Council rates are determined based, in part, on the RV valuation. It follows therefore that falling income from rates is going to hit local councils hard. Two options – reduce expenditure or increase rates level. History has shown councils
Opinion – Tony Alexander. The state of New Zealand’s housing market is mildly improving – and the Reserve Bank’s decision to drop the Official Cash Rate 50 basis points to 3.75% could bring further solace to the sector. The market turnaround is best seen in the annual number of residential property sales in New Zealand, rising from a low of 59,000 in mid-2023 to close to 71,000 now. Prices have yet to show much improvement overall, with an average gain of about 2.5% since the middle of 2023. The data tell us that first-home buyers are active in the market, but owner-occupiers are still hesitant. Concerns about employment are likely to be an element in play along with general low confidence in the outlook for the economy. My monthly Spending Plans Survey, for example, shows a net 10% of people plan to cut their spending in the next three to six months compared with a few months ago when a net 10% of people were planning to spend more. A more realistic assessment of the economy’s likely performance has occurred, though business surveys still show businesspeople are highly optimistic about what lies ahead. Their reality check may just be starting. While the absence of owner-occupiers from the market is probably temporary, there is a chance that the so-far low presence of investors could be a characteristic of this cycle. My most recent survey of real estate agents undertaken with support from NZHL showed that a net 48% of agents were seeing more first-home buyers in the market. The interesting thing is that while the reading for first-home buyers is down only slightly from December, the reading for investors is a sharp fall from net 36% positivity before Christmas. Why are investors hesitant to buy? One reason is that few will feel the need to beat price rises. Prices are only just edging upward at a very slow pace. Investors will feel that time is on their side, but they will also feel that holding an investment property while waiting for the tax-free capital gain will cost a lot more than it had done in the past. Councils (which