NEW ZEALAND: Housing Market Weak, Affordability Should Improve

NZ’s housing market began to recover in H2 '23 with a pickup in transactions and prices, but it has been deteriorating again over 2024 as affordability remains stretched and sentiment soft. Residential building consents are on the RBNZ’s list of higher frequency indicators and they remain weak, weighing on overall growth. A further deterioration in residential property could drive larger-than-expected monetary easing. 

• Unlike Australia, increased demand from immigration doesn’t appear to have sustainably boosted house prices. Like Australia though, it has put pressure on rents with NZ Q2 CPI rents +4.8% y/y, the highest rate since the series began in 2000.
• CoreLogic’s August home value index fell 0.5% m/m to be up 1.1% y/y down from 2.7%. It recently peaked at 4.6% y/y in April. Moderately higher prices plus elevated mortgage rates have pressured housing affordability but it looks like it turned in Q1 2024 and we estimate that continued in Q2 and Q3.
• August’s 25bp RBNZ rate cut should speed up the improvement in affordability, assuming that house prices don’t jump in response in coming months. But in the RBNZ’s Q3 household survey only 35% expected higher house prices, the lowest in a year, and the median change was zero. 

NZ % deviation from trend

• Housing is undervalued when looking at house prices to rents. The deviation from trend has been negative since Q1 2023 and deteriorated to -8.6% in Q2 from -5.8%.
• With deteriorating valuations and lengthening selling times, it is not surprising that building consents are low. In July they picked up 26.2% m/m to their highest level since October but are still down 15.3% y/y smoothed with a 3-month average.

NZ dwelling consents