Housing overhang holds back market

Homeowners with mortgages coming up for renewal are starting to smile. Hardly a day goes by now without one of the banks tweaking its mortgage offering in favour of home buyers.
Whether to fix short term (e.g. six months), sit on a floating rate until the bottom is reached or take the certainty of longer term if you think inflationary times are not quite over has become a swirling debate in the property world.
At some point the lower interest rates will be a catalyst for house prices to push upwards again but when that will be is hard to predict. Inventory (number of houses for sale) levels are still historically high.
“The total stock is still almost 30 percent up on last year,” says Sarah Wood, CEO of realestate.co.nz.
Wood says stock levels are reducing but the overhang is likely to persist until investors return to the market.
 “After low levels of new listings in 2023, we’ve seen an influx over the last few months. New listings increased in September, rising 18.7 percent year-on-year, but more on par with what we would deem to be a ‘normal year’. This is the highest level of September new listings in three years, and it adds to the total number of houses on the market. There are now over 30,000 houses listed for sale – the highest they’ve been in a decade during the month of September.”
Wood says the struggling economy and uncertainty around employment continue to be a major factor in the high inventory levels.
“You can also see the changes in government policy having an impact. In July the bright-line test was relaxed, allowing investors to sell after two years and avoid paying tax on the profit.
“We’ve also observed an increase in stock around places that are holiday home destinations. At the peak there were no listings in Pauanui (Coromandel peninsula) and now there are pages of them on our site. 
“Interest rates are on their way down … But they are still high compared to 2020.
“I think it takes time for the sentiment to change. There is still a lot of stock that needs to sell through, but I do think first home buyers and investors will have more confidence coming back in.
“Anecdotally, we hear that investor interest is picking up because the pricing (of houses) is right and if they are going to wear a higher interest rate then they are wearing it for 12 months before it comes down to the point where the numbers (return on investment) start to make a lot more sense, but I do think it will take time to flow through.”
Wood says there is one unknown factor that could influence prices.
“The big question is whether there is pent-up demand because of low transaction volumes (house sales) last year, but it is hard to judge.   
“What we can see is when the Reserve Bank first cut the OCR in August, we had an 8 percent lift in enquires in the two weeks following, and following the most recent drop in October, enquiries have surged by more than 25 percent when compared to October last year This indicates Kiwis are ready to take advantage of more favourable market conditions.”
Wood has just returned from a major conference in Barcelona for real estate portals which she says focused on the role that data is playing in terms of providing information to home buyers and how AI is helping portals reach and interact with buyers and sellers.
Artificial intelligence now plays a key role in automated property estimates or AVM (automated valuation models). These algorithms harvest large datasets to provide instant valuations on properties. AVMs are used by banks and mortgage lenders when deciding on loan amounts, real estate agents when listing a property, investors and private buyers when assessing the likely price of properties.
In a recent article, University of Auckland associate professors William Cheung and Edward Yiu discussed how AI is changing the way AVMs are calculated.
“The early versions used limited data sources like property sales records and council information. Today’s more advanced models include high-quality geo-spatial data from sources such as Land Information New Zealand.
“AI models have improved efficiency. But the proprietary algorithms behind those AVMs can make it difficult for homeowners and industry professionals to understand how specific values are calculated … In a property market as geographically and culturally varied as New Zealand’s, these points are not only relevant – they are critical. The rapid integration of AI into property valuation is no longer just about innovation and speed. It is about trust, transparency and a robust framework for accountability.”
Wood says the owners of realestate.co.nz – The Real Estate Institute of New Zealand (REINZ) and New Zealand’s biggest real estate agency groups – mean her portal has access to a  deep data set.
“Our relationship with REINZ allows us early access to the price a property sold for – before the settlement date which can sometimes be as long as three months. When the market is moving, it’s helpful to have information that accurately reflects what’s happening to house values in real time.”