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Residential Sales Continue To Dive

The number of sales and prices achieved across the country slumped again last month, but there were a few exceptions, writes Sally Lindsay.

By: Sally Lindsay

1 September 2022

Residential sales dropped 36 per cent last month to 4,678 from 7,391 in July last year – the lowest for the month since 2010.

The latest REINZ data shows monthon-month this was a drop of 4 per cent. Moving from June to July, the seasonally adjusted figures show a decline of 3.5 per cent.

All regions had an annual drop in the number of sales. However, some regions saw a month-on-month increase.

The greatest annual percentage declines were:

  • West Coast, dropped 54.9 per cent annually from 51 to 23
  • Auckland, down 48.7 per cent annually from 2,767 to 1,419
  • Northland, down 44.0 per cent annually from 243 to 136
  • Waikato, dropped 43.5 per cent annually from 742 to 419.
‘Gisborne had the highest month-on-month bump upwards, followed by Hawke’s Bay’

Gisborne had the highest month-on-month bump upwards, up 57.7 per cent on June, followed by Hawke’s Bay increasing 39.4 per cent.

Sales have been declining since July 2021, while at the same time properties listed for sale have risen a staggering 107.8 per cent annually.

Prices have also continued dropping from their November peak and last month the national median selling price slipped by $40,000 to $810,000, down from $850,000 in June. This was a 4.7 per cent drop.

Across the country the median price declined 1.8 per cent to $810,000, a drop of $110,143 since it peaked at $920,143 in November last year.

This is the first drop in the overall annual median price since July 2011 and has wiped out all capital gains over the past 12 months.

The median residential property price for New Zealand, excluding Auckland, increased 4.5 per cent annually from $688,999 in July 2021 to $720,000 in July 2022. There was a month-on-month drop of 2.7 per cent from $740,000.

The total value of residential real estate across the country fell to $1.69 trillion, down from $1.73 trillion at the end of last year, with mortgages secured against 20 per cent of that value, and the other 80 per cent household equity.

Firm Correction

CoreLogic’s latest Property Market and Economic Update shows property values have fallen for three consecutive months to an average of $1,018,770, down 2.3 per cent from the peak, with annual growth rates slowing to 12.4 per cent.

The sharp post-Covid upswing in values has now given way to a firm correction, and the falls already seen to date have been spread across most geographical areas and price brackets.

CoreLogic’s chief property economist Kelvin Davidson says it’s possible the national average property value will ultimately drop by 10-15 per cent by the middle of next year, which broadly suggests we’re potentially halfway through this correction in both duration and scale.

“There are multiple reasons contributing to a slowdown in values, these include more listings, a shift in pricing power towards buyers, a tighter mortgage lending environment, and sharply higher interest rates,” he says. “This weaker phase for the property market will continue into next year.”

Auckland’s average weekly rent rose $6.12 (or 1 per cent) to $622.44 per week for the quarter ending June.

When compared with a year ago, the increase is 3.27 per cent, or $19.70 more per week, data from 16,000 properties managed by Barfoot & Thompson show.

Director Kiri Barfoot says the figures are consistent with the trend observed over recent quarters, which typically sit about 3 per cent year-on-year, but she notes there are a wide range of factors at play.

“The market has been catching up off the back of frozen and slower-moving rents in 2020 and early 2021.

“At the same time, property owners have been working to accommodate new levels of compliance and higher operating costs, including rising interest rates and the removal of tax deductibility.

“All of these have put pressure on rental pricing, although the recent increases have been quite measured compared to the 5 per cent and 6 per cent peaks we’ve seen in the past.”

Central Auckland properties, dominated by apartments, were the cheapest in the quarter at an average of $511.90 per week in June, while homes in the eastern suburbs were the most expensive at an average $702.17 per week.

West Auckland, South Auckland and Franklin all offered average weekly rents under $600 per week.

By size, four-bedroom homes attracted the most price growth at 3.76 per cent, while one and two-bedroom homes attracted the least.

For the typical Auckland rental, a three-bedroom home, the average weekly rent was now $628.17, up 3.46 per cent or about $21.01 per week on a year ago.

House sales by Barfoot & Thompson during July were the lowest for that month in 22 years.

Just 611 properties were sold. Managing director Peter Thompson says prices and sales are out of sequence, as vendors and buyers establish where the market is priced.

Build Capacity

A truly spectacular crash to fresh lows is being predicted for the construction industry by ANZ as building consents sank 2.3 per cent in June compared with just 0.5 per cent in May.

ANZ chief economist Sharon Zollner says the outlook for house-building has hit a brick wall and data suggests building consents may have a lot further to fall yet.

June’s drop in consents was the third monthly decline in a row on a seasonally adjusted basis. The June figures were just over 11.5 per cent lower than March.

The last time building consents fell three months in a row was between November 2016 and January 2017.

Over the past year 50,500 new dwellings have been consented.

Fletcher Building says at that level consents are running 20-30 per cent ahead of the industry’s capacity to build. The ideal capacity for building is 35,000 houses a year.

Westpac senior economist Satish Ranchhod says with shortages of materials and labour resulting in widespread delays, planned work is taking longer to complete. Combined, those conditions don’t point to a sharp fall in building activity in the near term, but he says a peak in the construction cycle is fast approaching, if it’s not already here.

“The big change has been in the financial incentives for developers. House prices are falling, and prospective buyers are increasingly hesitant about purchasing homes off the plans,” he says.

At the same time, build costs have skyrocketed. CoreLogic’s latest Cordell Construction Cost Index (CCCI) has risen 7.7 per cent, the swiftest rise in a decade.

The construction industry is in a precarious position. More than 18 per cent of company failures in the past year were building companies going under, mainly because of labour and material shortages and increasing costs. Since the start of this year, 92 construction companies have been put into liquidation.

The average house value across the country has dropped below $1 million to $989,790 for the first time since September last year, QV’s House Price Index shows.

From 30 per cent annual growth at the turn of the year, the housing market has plummeted to just 4 per cent growth, and that is only half the story.

Exception To The Rule

Wellington city is leading the charge, where in real terms the average home value has dropped by more than $130,000 in only a quarter. It is not just confined to the city – suburban areas such as the Hutt Valley and Porirua have also seen values drop between 7-9 per cent over the last three months. Across the city the average value is down almost 11 per cent over the quarter.

Nationally, the average home dropped in value by 4.9 per cent over three months to the end of July, or $74,000 since the beginning of the year, with all capital gains being wiped out.

In the Auckland region, the average value now sits at $1,410,163, falling 5.5 per cent over the three-month period, or $131,005 since the beginning of the year.

One of the few exceptions is Christchurch, which had experienced almost 40 per cent annual growth by the later months of last year, but is now seeing only relatively moderate declines of 3.4 per cent for the quarter.

Meanwhile, Queenstown-Lakes District remains an outlier as the only one of 16 major centres QV monitors that has had positive growth over the past three months, albeit only just at 0.2 per cent.

QV says that the region should continue to buck the trend: “With the complete removal of all border restrictions at the end of last month, the obvious benefactor will be the tourist capital of the country.”

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