Owner-occupiers in New Zealand have been quiet over the past 12 months, with weak sentiment and higher interest rates holding movers back from relocating.
CoreLogic NZ Chief Property Economist Kelvin Davidson said there are signs upsizers, downsizers and movers might be starting to get more active, but it’s going to be a slow process.
He said in the second quarter of 2023, moves accounted for just 26 per cent of property purchases, well down on the long-running average of 29 per cent.
“It’s not hard to find the reasons for this relative lack of activity,” Mr Davidson said.
“For a start, general market confidence levels have been low, and movers won’t have been particularly keen to relocate when they weren’t sure about how long it might take to sell their own house first and of course what price they might achieve.”
He said difficulties in getting bridging finance have also meant that people have needed to sell before they buy, and this introduces ‘conditional offers’ and delays in housing chains.
“It’s also conceivable that some households have been wanting to avoid triggering a ‘credit event’ – such as a new loan/house move, top-up, or bank switch – given the intense income and expenses checks this would involve,” Mr Davidson said.
“Instead, much of the focus has likely been on paying down existing debt and managing the progressive rise in mortgage rates.”
Mr Davidson said although the available stock of listings on the market through the end of 2021 and most of 2022 has been relatively high, albeit coming down now, some of this is likely to be ‘stale stock’, and the lack of new listings has likely meant that would-be movers haven’t been able to find what they want as easily as in the past.
“At the same time, there’s certainly been an increase in ‘loving not listing’, with alterations and additions activity rising,” he said.
According to Mr Davidson, the data also suggests upsizers have been less prominent lately.
“After a relative rise in activity in the two to three years prior to COVID, their overall share of property purchases has dipped since the 2020 peak (7.6 per cent) and currently sits at around 6 per cent,” he said.
He said it still takes a lot of extra money – either debt and/or equity – to trade up the housing ladder.
“This financial hurdle may have put some would-be upsizers off, especially when mortgage rates have been steadily increasing too,” he said.
Mr Davidson said downsizer activity dipped in the early stages of Covid then became a more prominent feature of the market in 2021, rising from 4.6 per cent of purchases in 2020 to 6.3 per cent in 2022.
“To some extent this goes against the perception that many households were desperately looking for more space for working from home in the post-Covid period – although no doubt that did happen in some cases,” he said.
“Since that early 2022 peak, the proportion of downsizer activity has drifted lower again, perhaps as house price falls have reduced the scope for people to ‘cash in’ and free up equity through moving to a smaller property.”
He said this data shows that ‘new to area’ moves did become more prominent, rising from about 4 per cent of all purchases in early 2020 to a peak of 6 per cent in Q1 2022, which was about the time that property prices started to fall.
“In other words, there are hints here of a hunt for ‘quieter spaces’, with more people shifting to new regions,” he said.
“Clearly, the normalisation of remote and hybrid working models will have helped in this regard – although since the market’s peak in late 2021, that relative share of ‘new to area’ moves has tailed off again.”
Mr Davidson said as buyer confidence starts to return, he believes that the overall portion of property purchases going to movers will increase which may also help the flow of new listings to market.
“Of course, the hurdles of raising extra finance at a higher mortgage rate and serviceability test rate may mean a slow return to the market for movers,” he said.
“Within that potential overall shift, it could be that both downsizing and upsizing play a role.
“In the case of upsizing, this may be due to some households looking to get that bigger property before any medium-term growth in house prices pushes it out of reach again.
“Meanwhile, downsizing could be a form of protection against mortgage stress as households that are struggling with higher repayments after repricing look to trade down and ease the strain before there’s any risk of a forced/mortgagee sale.”