Slow 2023 start to residential market

Barfoot & Thompson, the city’s biggest real estate company, sold just 431 residential properties.

Barfoot & Thompson managing director Peter Thompson says while January is invariably the lowest sales month of the year, last month stands out for its lack of buyer commitment.

“There is a good level of buyer interest in the marketplace with agents reporting that attendances at open homes throughout January were higher than they were in the last quarter of last year.

“However, buyers continued to sit on the side line in January, presumably either waiting for prices to fall even more, are cautious about mortgage interest rates or are finding obtaining financing too challenging.”

Thompson says the level of interest being shown could indicate that buyers may be anticipating the bottom of the price cycle is not far off.

In the last quarter of last year, the median sales price stabilised at about $1.075 million. However, in January the median price dipped again by 6.3% and it now sits at $1 million.

This price level is down 15.3% on where it was at the same time last year and is where the median price was at in early 2021.

Vendors are still listing property for sale, and in January Barfoot & Thompson listed 920 properties. Thompson says this number is solid for the first month of the year but is down about a quarter on where it has been for the past three months.

The number of properties on the agency’s books at the end of last month was 4,747, a quarter higher than the number at the same time last year.

“As is normal for the first month of the year, buyers in the $2 million and over price categories were lightly represented in the market, and only 30 properties were sold in these price categories. High end buyers’ presence in the market tends to become more prominent from March onwards, says Thompson.

Buyer’s market entrenched

Across New Zealand realestate.co.nz website says the number of properties for sale at the start of this year is the highest since 2015.

The website had 27,732 residential properties available for sale - up a whopping 39.4% compared to the same time last year.

That was the highest level of stock available for sale in January for eight years.

Website spokeswoman Vanessa Williams says the relative slowness of the market was underscored by the fact January's high stock levels occurred in spite of the number of new listings received during the month dropping to 6,646, down 16% compared to January last year.

Perhaps unsurprisingly, properties also appear to be taking longer to sell.

The average length of time properties were advertised for sale in January was up 25% compared to January last year.

The average asking price of properties advertised for sale on the website in January was $889,036, down $131,816 (-13.3%) compared to January last year.

Average asking price falling

January's average asking price on realestate.co.nz was the lowest in any month of the year since September 2021.

But even those prices may be too high for some buyers, leaving many vendors disappointed.

Williams says vendors were either taking longer to find a buyer or were eventually deciding not to sell when they failed to achieve their expected price.

"Agents around the country says sellers have lowered their price expectations but prices are often not as low as the market in their region.

"Agents are having to work hard right now to find the middle ground between what vendors want and what buyers want to pay," she says.

No end in sight for downturn

The housing market downturn continues to roll on, with CoreLogic’s House Price Index (HPI) falling for the tenth consecutive month.

Residential property values are 7.2% lower than a year ago, the biggest 12-month drop since May 2009 (-7.9%), although still smaller than the “worst” of the GFC when prices fell 9.7% in the year to March 2009.

CoreLogic chief property economist, Kelvin Davidson says it isn’t a surprise to see property values generally fall further in January.

“Admittedly, we’re not seeing any real evidence yet that home owners are looking to ramp-up their selling activity – with unemployment still low, they can generally sit on the market for as long as it takes, or just de-list.

“But at the same time, buyers in a comfortable borrowing position still hold the balance of power when it comes to pricing, and this has clearly further driven values in January.”

Davidson says while it’s still too early to discern whether last month’s political changes have had any material impact on the property market, it seems unlikely they will, with more concern around the general election in October, and which party forms or leads the next Government.

“No doubt some existing and would-be property investors will be hoping for a National victory and a follow-through on their promise to reverse Labour’s Brightline and interest deductibility changes. But as the old cliché goes, there’s nothing guaranteed in politics,” he says.

Wellington continued to drop last month, although it wasn’t universal across the main sub-markets. Porirua rose by 0.9%, while Kapiti Coast’s decline was relatively small. On the flipside, Lower Hutt and Wellington City both dropped by about another 1%. Aggregated up, the wider Wellington area has seen values fall by 18.1% in the past year, with Upper Hutt at -21.6%.

Auckland’s minor 0.1% fall over the month reflected a “mixed bag”, with the city area rising by 0.8%, but Rodney, Waitakere, Papakura, and Franklin recording further steady declines. Despite a rise of 0.4% since October, Auckland city’s average values are still 7.2% lower than a year ago, with most other parts of the super city down by between 8% and 10%.

Mortgage rates remain key

Davidson said a peak-to-trough decline in average property values in the vicinity of 15-20% still remains a possibility, with the floor under the downswing potentially occurring in the second half of this year. However he warns there are risks in either direction.

“On one hand, there’s now a more compelling story saying that mortgage rates across most durations are at or close to a peak (except floating rates) – almost regardless of whether the Reserve Bank pushes up the official cash rate by 0.75% or 0.5% on 22 February,” he says.

“With net migration also picking up sharply, these factors argue for an earlier or shallower trough for house prices. It’s worth noting the pace of decline has certainly been slower in the past few months.”

Davidson added it’s worth keeping a cautious eye on credit conditions, even if mortgage rates have genuinely peaked.

“They’re still high, and this presents issues for new borrowers, as well as existing borrowers who are yet to reprice their loans off older/lower fixed mortgage rates.

“With recent Centrix data highlighting some more concerning developments for household finances and repayment arrears (including mortgages), it’s important to remember the effects of previous mortgage rate increases are yet to play out fully in the housing market.”