For the past 18 months, the housing market has been firmly in the doldrums.

Since the peak in late 2021, prices have fallen 16.1% according to Real Estate figures and turnover is about half what it was at the end of 2020.

But there are increasing signs that things have turned. This week, Kiwibank economists said it looked as though May was the trough for the housing market.

So what’s prompted the change?

Migration

This is the big one. Forecasters expect that, some time over the next month or so, New Zealand will clock up 100,000 net migrants into the country.

That is likely to mean a need for 40,000 to 50,000 more houses, Kiwibank chief economist Jarrod Kerr says.

Some migrants will rent rather than buy their homes, but that extra rental demand can also boost the property market.

Looser credit criteria

Corelogic chief property economist Kelvin Davidson said it was now easier to get a mortgage, which was helping prices.

From June 1, banks were allowed to lend 5% of their new loans to investor borrowers with 35% deposits, compared to 40% previously.

They were also allowed to lend 15% of new loans to owner-occupiers with 20%, from 10% previously.

Davidson said that, combined with an adjustment of the Credit Contracts and Consumer Finance Act (CCCFA) rules meant an increase in activity.

“The latest numbers show quite a big rise in the share of investor loans going out with a 35% to 40% deposit. If you had a 37% deposit in May you were locked out but from June 1, you’re in. It’s not led to a big surge in investors but for that cohort, they’ve been more active.

“We’ve also seen the share of lending going to owner-occupiers at a low deposit level has risen as well.”

Interest rates possibly peaking

Interest rates are higher than they’ve been in years, but the fact they probably won’t get a lot higher is drawing people back in, Davidson said.

“It’s a bit of a nuanced one because interest rates are still high, but it’s more people thinking they’re not going to get worse. They can quantify how things look in a worst case. If I’m comfortable with that, given I’ve still got a job, I can make some decisions. It’s not just that they’re peaking, there’s a psychological element.”

Lack of new listings

The number of people wanting to put their houses on the market has dropped a lot over the past year and hit record lows in the middle of this year.

Realestate.co.nz spokesperson Vanessa Williams said there had been a number of consecutive months this year when listing numbers were down in double-digit percentages compared to the year before.

“The lack of listings in combination with a rise in sales means the stock on the market is going down,” Davidson said. “The buyers that are out there, that have got finance, have reduced choice on the market.”

That means that people have to compete more for the desirable places.

Strong labour market

The labour market has been resilient to the economic downturn. The unemployment rate remains at 3.6%. Davidson said that had limited the extent of the downturn, because few people were forced to sell, and gave people more confidence about making decisions.

He said there was probably also a sixth factor driving the recovery.

“People look at all those things and there’s the confidence factor, the mindset starts to shift.”

Davidson said he did not expect a huge surge in prices.

“The housing market always tends to surprise and I’m not ruling out a faster recovery but you look at the fact that prices are still high – they’ve fallen but they’re still pretty high – interest rates aren’t going to fall any time soon, there are probably going to be caps on debt-to-income ratios next year, it’s hard to see a big or sustained upturn. That boom we had post-Covid, it’s hard to see that being repeated.”

He said National’s policies would push up prices on balance, if it were to win the election. Some investors might also try to get into the market ahead of potential limits on how much they could borrow compared to their incomes.