Are we there yet?

CoreLogic chief property economist Kelvin Davidson has described the housing downturn as on its last legs but it’s still not finished yet. And even if the market reaches its bottom, an immediate or strong upturn in this environment doesn’t seem likely either, he says.

So, buyers don’t need to feel in a hurry to buy, but for sellers, reaching an end, more or less, to price falls, would give them some certainty.

CoreLogic says new listings on May 7 were 23% down on the same period last year and property values fell 2.6% in the last three months, and 10.3% in the last year. Wellington was the main centre to experience the biggest fall in values, down 20.8% from the peak while Christchurch is only 6.2 % down, it says.

The latest Trade Me Property indicators in Property Pulse fit with what CoreLogic is seeing, says Kelvin.“It’s not optimism but less pessimism,” he says. “The idea that you can see the end but we’re not quite there,” he adds.

If you look at the fundamentals, mortgage rates peaking, the CCCFA and LVR loosened and more high LVR finance available, these key drivers start to build a case for a downturn ending but don’t think it’ll be a fast upturn, advises Kelvin.

Owner occupiers have not been listing because they’re uncertain of what price they’ll get, and they’re uncertain about the next house. “Once you remove the uncertainty, and make vendors think, ‘Now I’m pretty sure I can sell my house, mortgage rates are at their worst,’ and then people start making decisions again.” says the economist. By spring, he expects to see a reasonable amount of homes on the market.

In some cities, real estate agency heads are claiming the bottom has already arrived. Wellington, which was one of the first of the big city markets to feel the house price correction in late 2021, is likely there, according to Tommy’s Real Estate.

Its sales director Nicki Cruickshank says: “We probably think we’ve hit the bottom. We’re a bit ahead of the rest of the country and we’re finding there are a lot of people out there looking. We’re getting multiple offers on houses that we’ve not had for 18 months. Homes are selling faster,” she adds.

“It’s not shooting up at great rates but it’s steady,” says Nicki.

While buyer interest has been very focused on first home buyers in recent months, it’s now feeling like families buying their second home are playing a more active role, she adds. They’ve run out of room, and they want to buy a bigger property, she explains.

There’s more activity, definitely more people at open homes than there was a month ago, says Nicki. And winter in Wellington is a great time to trade up, downsize or secure that first home while prices are still lower, Nicki has told buyers and sellers.

In Dunedin, meanwhile, Joe Nidd, owner of independent Dunedin brokerage Nidd Realty says the feeling there is that the bottom of falling prices has been reached.

And the stats back that up, says the agency principal. “We’ve had three months (February to April) now where the median sales price has been around $570,000,” he says. And what’s interesting, he adds, is open home numbers are up from the beginning of the year.

We’re seeing quite strong activity from first home buyers and investor sentiment is changing, he notes. “There are more investors in the market which is a pretty good indicator that people are picking the bottom because, if they’re looking to buy now, they’re starting to see value even in a higher interest rate environment.”

Stock levels on Trade Me Property are dropping as winter nears, so every week tends to put some pressure on buyers. “When choice dries up, it’s more competitive and another reason for prices to plateau,” explains the Nidd Realty principal.

He cautions, the market is incredibly price sensitive. Buyers are intolerant of what they see as an inflated price. “People are just “watchlisting” homes on Trade Me Property and waiting until they see good value,” he says. Agents need to be really careful of their analysis of what’s sold, what’s competing with the property and then offer good value to a potential purchaser.

As for Christchurch, which hasn’t been as volatile a market as others in the country, Tall Poppy franchise owner, Debi Pratt says after some doom and gloom in January to March, inquiries are going up in her market. About a month ago, her top sales person had six or seven listings and they were attracting no activity, just sitting there. Then, three weekends ago the whole lot went under contract, she says. These were homes in the $500,000 to $800,000 range, a mixture of first and second homes. Meanwhile, open home attendance shot through the roof, says Debi.

To sellers, her message is, if they’ve got a home they can present tidily in winter, make it warm and welcoming, and smell nice, it’ll do better than in the spring.

Christchurch is still really affordable when put against places like Wellington and Tauranga, and she expects the city to continue to appeal to those moving from the North Island.

Bayleys National Director of Residential Sales, Johnny Sinclair, says various markets around the country are reaching the bottom, while others are yet to get there. Those who saw price falls first are coming out of it earlier than others, he explains.

“The Golden Triangle (Auckland ,Tauranga and Hamilton) and Wellington have seen the bottom first, he says. Next, he expects the Hawke’s Bay, Gisborne and Whanganui to find that base line.

And for those coming out of the doldrums there won’t be a big jump in numbers of listings, he expects supply to rise by around 10% –15%.

UP Real Estate director Barry Thom supports the Bayleys’ director’s reading of the Auckland market.

“In terms of inquiry and open home numbers, offers received and sales made in the last four weeks, the market is definitely showing an improvement,” he says.

Days on market, as ever, depend on the home, he explains. A beautiful, modernised home, with four bedrooms will sell in less than 30 days if it’s part of an auction programme.

“I don’t think we’re out of the woods but green shoots are sprouting. In February I would have talked more doom and gloom, whereas from late April through May, it’s significantly better,” he says.

There are still possible dampeners ahead which could affect the housing market, adds the real estate veteran. If the OCR went to 6% sending mortgage rates to closer to 8%, that might slow a recovery down.

Meanwhile, in the current market, the biggest issue is finding the stock, says the UP director.

“Sellers are still in a little bit of disbelief that it’s a good time to sell,” says Barry.

“As an industry, we’re down 30% in volume of sales and in order for that to change there needs to be a change of sentiment, a seller who says, ‘We’ll sell now’.”

At the moment, homeowners are wondering: “Do I go now or do I wait until spring, or until post-election?”

Ray White New Zealand Chief Executive Daniel Coulson says, looking at the company’s new listings over the 28 days to May 17, they’re down 21% on this time last year. At the same time, inventory is up overall by 19.04 percent from 12 months ago – so there’s more choice for buyers today though less new stock coming onto the market, he adds.

Meanwhile, property inspections are up 13% for the same period and, according to Loan Market data, pre-approvals are 18.10% higher than 12 months ago.

Lastly, property appraisals are 19.2% below where they were this time last year over 28 days. So, as a seller, there’s less competition than the same time last year. And, when you combine that with higher inspection numbers and higher pre-approvals, it paints a pretty good picture if you’re coming in today as a seller, says Daniel.

“The reality is, we’re in a market today of necessity vs. opportunity on the sellers’ side and on the buyers’ side it might be a bit of a combination. But people are selling because they have a genuine reason to,” he explains.

In terms of buyer intentions, early indications are that people are in a position to purchase but are waiting. If they believe the market is going to remain flat for the next 6-12 months they may be better off purchasing today than in 12 months’ time when the market is going up,” says Daniel.

He points out that any change in market conditions is much quicker and more pronounced today than it was 10 years ago. It used to take six months for a market turn to take effect, now with the availability of information, it’s much quicker.

“I would suggest anyone sitting on the fence on what might happen next, (whether they’re a buyer or seller) may find themselves in a different marketplace soon,” he says.

The Ray White NZ CEO says he’s seeing encouraging signs in the Auckland market. Of 13 auctioned properties at the Ray White Manukau rooms recently, 10 homes for first home buyers were sold under the hammer.

The question on a lot of buyers’ lips is, is the interest rate going to go up any more after May? If the Reserve Bank indicates that the latest rate rise is going to be the last move for a while, then you’ll start to see buyers have a lot more confidence, predicts Daniel.

The Ray White CEO’s argument to buyers, even if they’re borrowing money today, is it doesn’t matter when they get their mortgage, the rate is always quite temporary, but the purchase price, on the other hand, is permanent. By buying now, people can lock that price in, rather than worrying about what interest rates are going to do.

Something has to give soon. If you look at the number of sales made over the last 12 months they're below sustainable levels, says Harcourts Managing Director, Bryan Thomson. In other words, there aren’t enough sales and purchases being made for those who have to buy and sell.

Over the last 12 months,people have put their lives on hold despite changes in their lives, babies being born, someone dying or business success, says Bryan.

“And the question is, how long are they prepared to do that for?” he asks.

“Anecdotally, based on inquiry and open home attendance and success in auction, we’re close to a tipping point,” he says. And that’s not about going back to the post-Covid sugar rush but back more in line with more normal levels of transactions, he adds.

What agents should be saying to sellers at the moment is that the majority of price falls have taken place and good properties, well-marketed, will attract good demand.

With listing numbers constrained, if a client is selling to relocate or buy another property, his advice to them is if they sell now, they’ll stand out more with less competition.

“I don’t think anyone is predicting significant price change but we’re all expecting more volume,” says the Harcourts MD.

His message to sellers is: “If you wait until everyone else decides to act, there will be competition. At the moment you’re more in isolation and, if you’re transacting to purchase, I wouldn't wait until spring,” he says.

If sellers are waiting to hit the market in the spring two things will happen, explains Bryan: 1) they’ll be competing with other properties, and 2) they don’t know what the market will be like in the spring. And they’ll also be interrupted by the election in October.

The Harcourts MD’s advice for selling is either really strongly auction or if they prefer to put an asking price on the property, don’t ask a premium. “The market’s so transparent, if you’re sitting above the market, you’re just going to make the other houses for sale in the neighbourhood look cheaper than yours,” he warns.

If you don’t believe that the market may be close to the bottom, do a stress test with the banks, and see if mortgagee sales are a concern, suggests Johnny Sinclair.

CoreLogic’s chief property economist Kelvin Davidson says he’s seen little sign of mortgagee sales which were a potential concern with so many homeowners due to re-fix to higher interest rates in 2023.

The country’s two biggest banks BNZ and ANZ responded to Trade Me Property’s query about what mortgagee sales they were seeing and their response was a reassuring no, or very little.

An ANZ spokeswoman says the bank isn’t seeing an increase in mortgagee sales. Last year, the bank set up a team to closely monitor customers for signs they might be concerned about managing their finances or coming under financial pressure as interest rates rise and the economy slows.

“We’ve worked hard to support our customers in a rising interest rate environment and the vast majority have adapted well,” she says.

BNZ’s General Manager of Customer Assist, Martin King says: “The quality of our home loan book is very good, and this can be seen in our 90-day arrears which are very low, at less than one half of 1%.”

Many customers, when interest rates went down, didn’t reduce their mortgage repayments, choosing instead to pay down their loans at a faster rate, he explains. This gave them a buffer which is helping them manage their mortgage payments in a rising interest rate environment.