Tony Alexander: Why Kiwis shouldn't bet against a rapid rise in house prices

14 November 2023
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First home buyers are out in force.

ANALYSIS: Recent figures from property analysts CoreLogic show that first time buyers accounted for 27% of all house purchases in the September quarter. This is well above the long-term average of 21% and consistent with what my surveys of real estate agents and mortgage brokers started showing in February this year.

Late in 2022 a net 16% of agents in the survey I run with NZHL said that they were seeing falling numbers of first home buyers. Come February a net 22% said they were seeing more and in August this measure hit a peak of a net 66 seeing increased young buyers. My latest survey produced a 55% result which is still very strong and above the average of just 12%.

As discussed here since early this year, young buyers have been accelerating their purchases because prices have fallen near 18%, listings are very strong, investors were absent in open homes and auctions, and deposits had grown after a period of good wages growth and reduced spending opportunities.

Now, also as already discussed here, investors are showing increased interest. But there is no investor buying frenzy underway. At the end of 2022 a net 69% of real estate agents reported in my survey that they were seeing fewer investors. Come February this eased to 41% then 13% in July before hitting exactly zero in August.

Now, a net 26% of agents say they are seeing more investors looking to make a purchase. This is the strongest reading since just before the tax changes announced in March 2021. But it is nowhere near as high as the measure for first home buyers.

Why are investors looking to buy now? They can see prices are rising, so fears of losing capital from falling prices have almost entirely disappeared. They can see the logical implications discussed here last week of rising demand for housing from accelerating population growth set against falling construction of new dwellings.

They also anticipate the return of interest expense deductibility slowly over the next three years and this is where we get an important driver of investor demand. They are buying because they expect other investors to buy. That is how asset markets work and why share prices sometimes soar and sometimes fall away quicky.

First home buyers in contrast are mainly buying because they want a secure home to live in. The primary motivations are different - but they are deeply intertwined. In fact, first home buyers are now probably looking to intensify their house search because they are reading stories about investors coming back. They anticipate higher demand, reduced choice, and higher prices.

Thus, much as it seems quite reasonable to say that high mortgage rates will prevent any rapid growth in house prices in the next six months, I’m not so sure. Buying to beat price rises is a powerful motivator. For the moment this feeling of FOMO – fear of missing out – is only running at about average levels. But it may not take much to take it above 50% from the current 33% reading – meaning 33% of agents in my latest survey felt buyers were displaying FOMO.


What might be a trigger for even more haste and FOMO? My best guess would be good news on the inflation front bringing heightened expectations of easing monetary policy next year. So, keep a eye on things such as business price setting intentions measured in the ANZ’s monthly Business Outlook Survey, general commentary about businesses finding it easy to get staff and predictions of much higher unemployment, plus changes in international oil prices.

- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at

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