Update (15 August 2024): After this article was published, the Reserve Bank reduced the Official Cash Rate from 5.50% to 5.25%. The major banks have also started reducing their mortgage rates. This is likely to be positive for the housing market given that high interest rates have been one of the biggest headwinds for the market over the past two years.

A “weak neutral” is how Chris Farhi, Bayleys Head of Insights, Data and Consulting describes the first half of this year despite ending 2023 on a more positive note.

“Coming into the end of last year we'd actually had a pretty good run in the market. We'd had a solid six months of consecutive increases in the house price index and I think there was some pretty good sentiment coming through that we'd finally nailed the downturn.”

But as most of us know, the downturn has lingered around a lot longer than we would’ve liked, especially with the high levels of housing stock on the market.

Farhi says what appears to have happened was that last year’s positive end may have motivated many to list.

“There’s more new listings coming, but then the sales rates have still been sluggish. If you look at the last three or four months that's really been the challenge.”

“Buyers have been distracted by all the different options that are out there. It's been harder to keep their attention, or for them to have any urgency to act unless they really loved it.”

That coupled with high interest rates and a reluctance by some vendors to price lower has made things tougher.

“We're still seeing some auction room clearance, but that's when the price expectations are right. Where it hits an issue is basically if the price expectations are still too high.”

“Interest rates are still relatively high too, and although there's confidence that they're at their peak, we're not really getting huge certainty around when they're coming down.”

Farhi says things were further compounded by growing concerns about the state of our economy.

“There’s the cost of living, public sector job cuts and constraints on hiring. Economic conditions are becoming a much bigger concern than what we would have seen at the end of last year.”

JUST HOW MANY HOUSES HAVE GONE TO MARKET?

At the end of June this year there were 31,745 homes listed for sale. Comparatively, over the same time period last year to June 2023 there were 24,676.

“It’s a substantial increase.”

However, Farhi says Bayleys has still been performing ahead of expectations over the past three months.

“Our agents are generally doing a lot better, but they're having to work a lot harder to achieve the same outcomes as they would have done previously.”

“If you talk to a lot of the older agents, they're actually saying that conditions at the moment are sort of becoming a bit more like a normal market.”

That’s because the real estate sector has been full of extremes over the past two years, and we haven’t experienced ‘normal’ in a long time.

“I think it's harder for new agents, or those who are just in the market now to be able to draw back five or six years ago to how the market was then. But you have to go back that far to get to a normal market, because more recently we've gone through this huge boom and kind of like a bust cycle.”

WHAT HAVE BEEN THE BIGGEST CHALLENGES?

When it comes to vendors, Farhi says the number one issue is above market price expectations.

“They don't have any particular rationale for it, then there’s also an overconfidence about the recovery of the market which has reinforced their price expectations.”

With buyers, some of the most common challenges are too much choice, wanting a conditional sale, finance and interest rates.

“If we start to see clear evidence that interest rates are going down, that's probably going to change that sentiment quite a bit.

“So once we see that, then we'll probably see a big lift in activity in the market.”

WHAT CAN WE EXPECT OVER THE NEXT SIX MONTHS?

The Reserve Bank has again held the official cash rate steady at 5.5%, with annual inflation dipping to a three year low of 3.3% - just shy of the RBNZ target range of 1% - 3%.

With all that in mind, Infometrics Principal Economist Brad Olsen says things may get a little brighter in the second half of the year and describes the next six months as one full of “green shoots”.

“It’s a feeling that there’s light at the end of the economic tunnel and that it's genuine sunlight and not another train”.

But he says it’s less of a turning point and more of a bump across the bottom for a while.

“I think those subdued conditions we’ve seen over the first six months of this year will probably likely be there for most of the rest of the year as well, it’s just that the hit from those interest rates aren’t getting any higher.”

“Because of those higher interest rates, people also can't get a mortgage from the bank. We don't see that changing anytime soon, and at the moment Infometrics has picked February next year for those to start pulling back.”

While pressures are expected to start easing into the second half of the year, Olsen says it’ll pay to approach it with careful optimism.

“We're a bit cautious of thinking that those pressures are just going to massively boost away. It's probably going to be a gentler rising of activity once we start to get interest rate relief.”

WHEN WILL THE RELIEF COME?

Brad Olsen says it’s important not to think that the economy will completely correct itself the day we tick over into 2025.

“Everyone talks about survival to 2025. But that’s twelve months long, and no one has specified yet what month we need to survive till, and that might well be later in the year:”

People’s expectations then often motivate them to make big financial decisions much too soon.

“We go back to February and March of this year and some of the expectations for interest rate cuts were wildly optimistic. The market was getting ahead of itself and sort of energised everyone, and now everyone is looking back and saying how did we get it so wrong?”

Olsen expects the turn will come, but he believes it’ll be slow.

“Even once you start to get some actual relief, I think that people are possibly still over egging, how good it will be and how much relief will be delivered. So it’s important to be a bit more cautious about those expectations.”

SHOULD I BUY AND SHOULD I SELL?

You can do both, but Olsen says the key is to be sensible.

“There's definitely some deals to be done. You're not going to get top dollar for things at the moment, but equally you're probably not going to get super dirt cheap.”

“You're probably going to get somewhere a bit more in the middle, but you've got to be sensible, flexible and willing to roll with things as they move.”

On the buyers side there’s a lot of options which allows people to be more cutthroat around pricing, and on the sellers side things are moving but there’s a need to be willing to negotiate.

As for structuring your mortgage over the next six months with an interest rate cut looming, Olsen says many people have been opting for a six-monthly rate.

“The first couple of months of this year we were seeing around 17% to 20% of new mortgage lending going on six months only rates, which is quite a significant proportion.”

What it suggested was a belief from a lot of homeowners that something was coming.

“Households were thinking if they fix now for six months now, I lose if they go up, but no one thinks they're going up. I don't lose and I don't win if they remain the same for six months, and I win if they go down in six months' time.”

But whatever comes, Olsen says it may not be hugely significant in the short term.

“For the current one-year rate to be good enough to beat a two-year rate, you have to be presuming that next year’s one year rate when you refix is quite substantially lower. I don't know if there's a lot of confidence around it.”

“There isn’t the strong view that there’s going to be a slash and burn so it would pay to go through it all with an advisor.”