JUNE 2020 MARKET UPDATE
16 June – MARKET COMMENTARY, REAL ESTATE, MARKET UPDATE
12 weeks since lockdown and our economy and real estate market, in particular, became something of an unknown. On the 27th of March, the wheels started turning again for real estate but under tight restrictions and then only just 4 weeks ago we could operate with some normality in helping to transact property again.
So for a little over a month now we are starting to see some decent data of where we now sit and the statistics versus the attitude or temperature on the street are quite different.
Interpreting the statistics
Median Sale Price
The peak of the market for the North Shore was in February and for the greater Auckland area was in March. Receptively we have seen a drop since lockdown of 15.5% and 4.4% but a year on year growth of 3.1% and 7.1%. The greater Auckland area provides a larger pool of data and will, therefore, be more accurate with less fluctuation. The North Shore area appreciated at a faster pace and more aggressively than the larger Auckland Market in the first few months of this year so it is no surprise that we may be seeing an equal drop as the heat dissipates out of it. The first home buyer and investor based market at the lower price levels seem to be the most active and buoyant at present which also may be artificially pulling the median sale price down. Even if we adjust for this and a short operating month of stats with 12 days in Level 3 the North Shore area has seen around 10% drop since the peak and in Auckland around 3%.
Days on Market
With the average days on market blowing out to just about double of what they usually are (except for the odd anomaly) the first assumption would be that sale cycle is slowing down. With many properties put on hold for a period or being listed during level 3 when we saw hesitant buyer engagement, this particular data or marker is not reflective of the current market place. We will still need more time before we get a clearer and more representative reading.
Volume of Sales
The number of sales is approximately half of what this time last year produced. The effects offer a smaller pool of data for accuracy of the median sale price and would represent that the market is still picking up to full swing. We are finding many buyers are in the process in the last few weeks of organising new bank approvals, regaining confidence and looking for new listings to come on the market. These factors together have been holding back a portion of the buyers and over the coming months may continue to grow.
The spread of Sale Method
With many sales completed of existing housing stock from prior, during the lockdown and since level 3 recorded, there is no surprise that the largest method of sale increase is by Private Treaty. With the first couple rounds of Auction sales now rotated we have seen a positive clearance rate of around 60% with robust bidding and competition. Pre lockdown we were seeing 80 – 90% Auction clearance rates and we expect this metric to improve in the coming months.
Housing Stock
We initially saw the available properties for sale swell from January 1st circa 4,000 homes (Auckland) and 646 homes (North Shore) to a peak of 10,000 homes (Auckland) and 1300 homes North Shore on the 1st of March. This also highlights the fact that even now in May with around 10,000 and 1,200 homes for sale respectively that we are still fighting a shortage with housing stock levels a year ago sitting at 13,500 for Auckland and 1,600 for the North Shore. This still feels to be a tight stock market and of late we have been experiencing low appraisal and listing numbers.
The view for the coming months as we enter the traditionally slower winter stock level months and with an election approaching is that we will only expect this to be exaggerated.
What we are feeling
Generally, it appears to be busy. Open home numbers are good and potential purchasers engaging in viewings and due diligence activities demonstrates a genuine interest in making buying decisions.
Entry-level and investor based purchasing seems to be a sizeable part of the sector which is trending however positive increases in activity through the entire price column is starting to occur.
Whether this is based on limited housing stock or a lack of new stock coming to market or a flow up from strong lower levels, the buyer pressure rebalancing the market place feels to be headed in the right direction.
Buying conditions are great for those who have good job security and serviceability with interest rates at super-low levels and LVR restrictions lifted (albeit lending attitude from banks is tight). We feel that many buyers who have been sitting on the fence are now making moves to enter the buying market.
The lending environment poses well for people in homes which may take a hit from economic changes. We expect to see fewer mortgagee sales or forced sale situations than the GFC (Global Financial Crisis 2007) due to stronger equity/loan ratios along with the costs of holding a mortgage being more affordable to keep the family home over one’s head.
Many properties going to Auction are selling on Auction day or shortly after leading us to believe that the true days on market when not affected by the lockdown/level 3 will look a little more like the mid-30s or touching a 40 at most.
We have noted low appraisal and new listing numbers indicating that owners may be holding off from selling their homes till this coming Summer market. We may see a flood of new listings and even with New Zealand’s leading economist Tony Alexander predicting catch up buying in 2021, the fundamentals of economics – supply vs demand – may cause for a continued restriction for property price growth as we may see stock levels rise to a buyer demand which may not match it.
The economic impacts have been slow in entering the real estate sector and with many rounds of job losses and business closures already and more set to come, the effect on the number of buyers in the market place at some stage will occur. We are not feeling any of this yet and it could all come together over this winter period or by the election.
Summary
We feel the property market, in particular the median sale prices, will hold based on a reducing listing stock matching in the short term to equal any reducing buyer demand. If buyer demand goes up this could help stabilise the median sale price. If housing stock swells beyond appetite later this year or early next year we could see slightly softer or similar conditions continuing even if other factors around the economy become more positive.
Overall we consider for the North Shore area we may have seen the bulk of the price realignment and for the Auckland area we may have a little more to come. We will be surprised if these realignments reach much more than 10% at most once the dust settles. Everything should stay reasonably stable with minor fluctuations until we see more robust confidence in the economy and positive steps forward.
