How you control the housing market

How you control the housing market

Buyer sentiment about the housing market has shifted, and experts say the mood change is playing a big part in the market slowdown.

Falling house prices and sales activity have been accompanied by a marked decline in buyer expectations. The latest ASB Housing Confidence survey shows that only 11% of New Zealanders now think prices will rise over the next year.

That’s a big fall from 49% in its last survey, but net expectations remain positive.

In contrast, housing confidence plummeted to lows of around -50% when the global financial crisis hit the market in 2008.

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ASB’s survey also shows a net 20% of people think it’s a bad time to buy a house, and Consumer NZ surveying in April supports that.

It found just 21% think it is a good time to buy, while 49% think it is a bad time to buy. Increasing numbers of people expect prices to decrease, and 80% still believe the market is “overinflated” or “out of control”.

But both surveys show a slight improvement in buyer sentiment. In Consumer NZ’s February survey 58% said it was a bad time to buy, while in the previous ASB survey 28% thought it was.


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Meanwhile, economist Tony Alexander’s latest survey of real estate agents reveals a fear of over-paying, or FOOP, has taken hold, with 73% of agents reporting it.

That’s up from 19% in October when fear of missing out, for FOMO, was dominating the market. Now, just 4% of agents are seeing FOMO.

So what does all this mean for the market?

Real Estate Institute chief executive Jen Baird says sentiment influences supply and demand, which affects market activity and prices.

Last year there was a sense of urgency as demand outweighed supply and there was strong competition for property, she says. “People felt that prices would continue to rise and believed it was a good time to buy, and so they did.”

More people think now is not a good time to buy.


More people think now is not a good time to buy.

Agents started reporting slower open homes and less interest back in November, and sentiment shifted quickly from there, she says. The introduction of policies to moderate the market, including new lending rules, contributed.

“These factors led to the perception that purchasing a property is less attainable, and that price growth was unsustainable. Buyers have stepped back, waiting to see the direction of the market before they make a decision.”

Consumer NZ spokesperson Gemma Rasmussen agrees people are feeling nervous about property purchases. The price dip, coupled with inflation and the volatility of world events, is likely to be contributing to that, she says.

“Buyer sentiment comprises a mixture of things from pricing, to lending criteria, to available stock, but ultimately no one wants to feel like they’ve purchased an overpriced property, and that is very much a reality for those who have made recent purchases. ”

While experts say there is a clear correlation between how people feel about the market and the way it is moving, they are divided about the degree to which sentiment drives the market, or merely reflects it.

Alexander says an event, such as a change in interest rates, might start a market cycle moving in a particular direction, but it is widespread shifts in sentiment that really gets the cycle running up or down.

What people think and feel about the market is what drives it, but sentiment also feeds on itself, and goes in a circular direction, he says.

“There always comes a point when people start to feel prices are pretty low, so it is a good time to buy again, and that kick-starts more activity.”

Tony Alexander's surveys show a fear of overpaying.


Tony Alexander’s surveys show a fear of overpaying.

Experienced investors know this will happen as they understand how property cycles work, he says. “They are waiting for sellers to fully capitulate to the changed market, and then they’ll get in early for the best deals before the mood shifts again.”

That may start to happen late this year, but Alexander says the average buyer responds to broader cues and commentary, so it will take longer for sentiment to pick up completely.

Mortgages Online director Hamish Patel says while credit policies have had a big impact on the market, buyer sentiment has now taken the driving seat.

Humans are pack animals, and many of his clients who think they are waiting for prices to drop further are actually waiting for prices to ramp up before they buy, he says.

“There is a feeling of safety in numbers. The market is driven somewhat by fear and confidence, right now fear is more rampant than confidence.”

He is seeing lots of clients who have got their loan approved, waiting on the sidelines for the first trench to jump in. “When that happens, the pent-up demand will be released in a wave that will drive the next bunch of headlines that will bring in the next wave.”

But principal economist Brad Olsen says while sentiment plays a part, it is a change to a fundamental market which is the true driver of market direction.

This time round, tighter lending requirements meant buyers could not get the house they wanted at the price the seller wanted, and so they stepped back, he says. “It then becomes self-fulfilling as the market cools and people’s intentions change.”

Mortgage adviser Hamish Patel says people feel safety in numbers.


Mortgage adviser Hamish Patel says people feel safety in numbers.

Buyer expectations and sentiment are critical as they highlight the probable direction of the market, but they can sometimes substantially overstate reality, Olsen says.

“There is a lot to worry about at the moment, and people feel it is all doom and gloom, and that everything is going to get much worse, but things should be kept in perspective.

“Market momentum is shifting, but greater affordability is coming through. More small house price drops are to come, and faster than expected, but prices are substantially higher than in pre-pandemic times.”

At this stage, he does not believe the market slowdown is starting to accelerate into a catastrophic situation, but says it seems buyer sentiment is more wary.

Not all buyer sentiment about the market is negative. Ray White lead auctioneer Sam Steele says there are two types of sentiment in play at the moment.

“For many buyers, there is uncertainty, and they are waiting to see what happens when the market settles down. For another group, and it does include some first home buyers and upsizers, they see opportunity.”

He does not think mood drives the market, but instead reflects it. Something, such as interest rate rises or tighter access to credit, happens, people start to react to it, and that drives sentiment, he says.

“The current market is not a bad market, but we had an extraordinary market for a couple of years, and people have forgotten what a normal market is. So as the market corrects, the change is scaring people, but it is just returning to a more normal state.”

Sentiment is actually more positive than it was two months ago, with more buyers out and open home numbers picking up a bit, Steele says. “I think people are starting to acclimatise, and sentiment will start to reflect the new reality.”

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