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Residential Property Sales Hit A Trough

Sally Lindsay discovers despite a sales dive of 32.8% prices have remained steady.

By: Sally Lindsay

31 March 2022

February sales figures have dropped to the lowest number in a February month since 2011. REINZ data shows sales dropped 32.8% in February from 8,324 in February 2021 to 5,597. For the month between January and February sales declined 3.2%. February is usually the biggest sales month of the year.

Across New Zealand, excluding Auckland, sales dropped 28.8% in the February year from 5,412 to 3,856. Auckland was hardest hit with sales declining 40.2% from 2,912 in February last year to 1,741 – the lowest February sales count since 2019.

But property prices have remained steady.

Median prices across the country increased with only Auckland and Northland dropping.

In the month from January to February this year the national median price rose from $880,000 to $885,000, giving an annual gain of 13.5%.

It is the third month in a row the median was below the November peak of $920,143.

The median residential property price for New Zealand, excluding Auckland, increased 20.6% from $651,000 in February 2021 to $785,000 – a new record high.

Auckland’s median residential property price increased 8.2% annually, from $1,100,000 in February last year to $1,190,000 – although down 0.8% on January. Since its peak in November 2021, Auckland has seen a significant drop in the annual percentage increase at a level not seen since LVRs started to effectively curtail rapid property price rises in late 2015.

Pressure Eases

REINZ chief executive Jen Baird says market sentiment has shifted over the past couple of months which is evident throughout the February data.

While prices remain strong, sales continue to drop and an influx of stock across New Zealand is easing demand pressure, which may in turn further ease price growth in coming months.

Healthy median price increases continue in Canterbury, reaching a record high in February. Selwyn and Waimakariri lead the charge, both having reached record medians in eight of the past 12 months.

“While prices are holding despite the change in market dynamics, there is now a fear of over paying (FOOP) amongst buyers, some of whom will be under additional pressure from legislative and fiscal changes impacting their ability to borrow,” says Baird.

As a shift in sentiment sets in and buyers are less willing, or unable, to pay the prices we saw towards the end of 2021, pressure will come on vendors to adjust their expectations to meet the market.

The housing boom is well and truly over ... even the public believes that now.

Buyer sentiment has fallen to the lowest level in the 26-year history of ASB’s Housing Confidence survey, while at the same time the public has never been more convinced interest rates are going to keep rising.

The quarterly survey to January shows the percentage of Kiwis expecting house prices to rise over the coming 12 months fell to a net 49%. That’s still above average, but it’s well down on last quarter’s net 62%.

ASB senior economist Mike Jones says the direction of travel is clear. Housing confidence was down a sizeable 13% last quarter. “We’d expect further falls ahead now that momentum in NZ’s housing market has convincingly turned.”

Amongst the regions, ASB says it was surprised to see Canterbury record the lowest confidence reading, at a net 42% expecting prices to rise. Canterbury has been bucking the trend of more general cooling in the housing market; annual house price inflation in the Garden City is running at roughly twice that of Auckland and Wellington. At the other end of the spectrum, South Islanders outside Canterbury remain the most bullish at +59%, with Auckland at +52% and the rest of the North Island at +48% somewhere in the middle.

Hangover Problem

But while the boom might be passing, there’s still the hangover to deal with. Stretched affordability, rising mortgage rates, and tightening credit are not the makings of a happy home buyer.

Respondents who think it’s a bad time to buy a house now outnumber those saying it’s a good time by five to one. “If house prices do back-pedal a little this year and wages rise, housing affordability should look a little better by the end of the year,” says Jones.

When asked whether it is a good time to buy a house, survey respondents have never been more definitive.

A net 28% think it is a bad time to buy (7% think it’s a good time, 35% a bad time) the most negative reading for buyer sentiment since ASB’s records began.

Just 7% of people think it’s a good time to buy, while 35% of people think it’s a bad time, 47% think it’s neither and 11% don’t know.

And who could blame them, says Jones. “The housing boom has lifted prices to extremely stretched levels, mortgage rates are rising, and the weight of expert opinion is now warning of outright falls for this year.”

CoreLogic’s latest House Price Index shows the market across the country has weakened, but Auckland values are showing more resilience recording a growth rate of 1.8% for February to average $1.5 million for the first time.

It’s the lowest rate of growth since September 2020, which marked the start of New Zealand’s exceptional 18-month spurt. At that time the strictest of the initial national lockdowns had been eased, uncertainty had dramatically reduced and the Government and Reserve Bank fiscal and monetary support was directing money into assets.

Beneath the surface of the recent growth, however, the more expensive markets of North Shore at $1.67 million and Auckland city isthmus at $1.72 million, along with the more rural Rodney area at $1.39 million, have shown visible signs that growth has slowed.

The national measure of housing prices was 0.8% higher in February, a sharp drop from the January reading of 2.1% and down from the cyclical peak rate of 3.1% growth in April last year.

CoreLogic research head Nick Goodall says given the index incorporates sales data from the past three months, February’s positive reading can be attributed to stronger sales before Christmas.

“Analysis of very recent sales, including unconfirmed sales, shows sentiment is changing rapidly, with vendors unable to achieve the prices of last year,” says Goodall.

Rate Hikes

Recently published lending data for January from the Reserve Bank shows a significant drop in mortgage activity, adding additional weight to the worsening housing outlook. “This trend is likely to persist, as stretched affordability and improved choice for buyers compounds the impact of tighter, more expensive lending,” he says.

‘Sentiment is changing rapidly, with vendors unable to achieve the prices of last year’

“Our expectation is the index will dip further over the coming months as continued rate hikes and tighter credit controls weigh on market conditions. The significant drop in the monthly rate of growth from January to February indicates a clear change in trend.”

Barfoot & Thompson’s median selling price of $1,122,500 in February was a drop for the third month in a row and is $117,000 lower than its November 2021 peak of $1,278,647.

At $1,196,036, the average sales price for February is still the fourth highest on record, and 11.2% higher than at the same time last year, but dropping by $82,611 from its December high of $1,278,647.

Rising interest rates and tighter bank lending have combined to take the heat out of the Auckland housing market in the first two months of the year, says Peter Thompson, Barfoot & Thompson’s managing director.

The agency is by far the biggest in Auckland and Thompson says February’s prices and sales numbers were down on those for the previous three months and are now in line with those being achieved midway through last year.

“It’s an indication that last year’s aggressive rate of price rises has peaked, and price increases are easing back as buyers take a more cautious approach.

“A return to a more stable pricing environment might be in sight.”

Sales for the month at 750 were down from 801 in January and 911 in December and a significant decline from February last year, which Thompson says was exceptionally busy. However, when compared with those for the five years between 2016 and 2020 sales numbers are typical for the early part of the year.

“March sales data will give a better indication as to whether the market is in for a more stable year, as the disruptions caused by the Christmas break and holiday season will have worked their way out of the sales figures.”

He says sellers will also have had time to reflect on the changing price environment and whether they need to trim price expectations to achieve a sale.

New listings in February at 1,077 were modest for this time of the year but combined with the lower number of sales it has increased the number of properties the agency had for sale at month end to 4,385. This is the highest number of properties Barfoot & Thompson has had for sale at month end in nearly three years.

A feature of the Auckland market now showing up in sales data is the high number of apartment sales, and in February 21.5% of all sales were for properties valued at under $750,000. Last year, February’s sale of properties for under $750,000 represented 18.1% of sales.

Spotlight On Consents

There was a drop in the number of building consents issued in January compared with the same time last year, but the number was still the second highest recorded for a January month in the 57-year history of the series.

Statistics NZ data shows 2,833 consents were issued in January, down from 3,025 consents in the same month last year.

Of the 2,833 new dwellings consented, 1,435 were stand-alone houses, 1,013 townhouses, flats, and units, 207 apartments and 178 retirement village units.

The number of apartments being consented fell, contributing to the overall drop, but their monthly numbers can be volatile. However, home units and townhouses rose 13.2% and retirement village units a staggering 45.9%.

The construction value of new houses consented in January was up 3.9% to $1.165 billion.

The annual value of commercial building work was $8.2 billion, up 16% from the January 2021 year, but in January alone this year the value of consents dropped to $447 million from $482 million in January last year.

This was mainly because of a 65.4% drop in the value of consents for hotels/motels and other short-term stay accommodation premises, a 61.9% decline in consents for education buildings and a 23.7% drop in office buildings.

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