This is ANZ’s take on the housing market in its latest Property Focus. The bank is the biggest home loan lender in New Zealand with a $107.5 billion mortgage book. It says property investors are finding the cashflow on their investments less tolerable in an environment of flat to falling prices.

Changes to the bright-line test from July 1 could see a surge of listings into the spring that keeps the power on the buyers’ side of the table. That points to some downside risk around the bank’s house price forecast for a modest three per cent rise in prices over the rest of this year.

But, says ANZ chief economist Sharon Zollner, every cloud has a silver lining: a moribund housing market, all else equal, will make the RBNZ more relaxed about the market pricing in cuts to the OCR earlier than the central bank itself is – a dynamic that has seen fixed mortgage rates ease a little from their peaks in recent months.

However, the RBNZ’s hawkish tone this month saw the market back away considerably from its early rate-cut bets.

“Expectations aside, a soggy housing market is a tick in the ‘earlier’ rate cut column,” Zollner says.

Housing supply

The total number of consents issued has been falling steadily and in the context of strong population growth it’s clear that the fundamental demand-supply balance is now a tailwind for house prices.

The ANZ’s model suggests the housing deficit could be widening to the tune of more than 5,000 dwellings per quarter and that over the past five quarters alone the cumulative deficit is close to 30,000 dwellings.

It could be debatable on how accurate this is, as census data shows between the 2018 and last year’s census the number of houses increased nine per cent to 2,056,578 from 1,886,517 (an extra 170,061) while the population increased 6.3 per cent, a much lower rate. The growth in more houses than population was strong in Auckland and Marlborough. In the Auckland region, for example, the number of houses rose 11.9 per cent, while the population increased at a much lower 5.4 per cent.

Affordability

Whether looking just at house prices relative to incomes or taking into account interest rates as well, housing affordability, while off its recent highs, remains dire relative to history. Housing affordability deteriorated significantly following the pandemic, with house prices relative to incomes touching highs never seen before.

“It’s been a particularly bumpy ride for new entrants, who have not only had to save a larger proportion of their income to come up with a deposit (and/or wait longer), but who now face a much higher debt-servicing cost as a share of income compared to the decade preceding the pandemic,” Zollner says.

“The good news is that the worst is hopefully behind us. But international comparisons show that some economies may have it even worse, implying that the recent peaks in unaffordability seen in New Zealand may still be shy of any ‘natural limit’.”

Plugging in its forecasts, ANZ says they show the only major relief on the affordability front over the next few years is expected to come via the debt-servicing channel as mortgage rates decline.

But overall, its outlook implies housing will remain less affordable over the next few years than it was prior to the pandemic.

Zollner says as it stands now, without a solid dose of FOMO (fear of missing out), which there is certainly no sign of, given the sheer amount of stock on the market buyers are likely to still be wondering why they’d bother.

“Overall, our take is that 2024 is shaping up to be yet another soggy year for the housing market, but while we are expecting a little more weakness to come in the near term, for now we maintain our forecast that house prices will eke out a modest three per cent gain.”