The real estate riddle - and what it means for house prices

December sales showed the New Zealand real estate market in the best form it has been since 2016.

Median house prices increased in all regions (except the West Coast), and the number of sales for the month were the highest for December in three years. Nationally, sales numbers were up 12 percent - and in Auckland, where prices and sales had slumped for much of the year – the number of properties being sold was up a whopping 32 percent on December 2018.

But the number of listings has yet to catch up with the upturn.

James Wilson, head of valuation at OneRoof’s data partner Valocity, puts the softening of listings numbers down to vendors anticipating that growth rates are bound to slow at some point.

“Vendor are focusing on the longer term, thinking that their assets have already achieved healthy value growth, so they are now content to hold for a longer,” he says.

“They are opting to re-finance to capture some of the equity in their property rather than take it to market.”

OneRoof editor Owen Vaughan agrees: “A drop in listings was to be expected in Auckland, where the market has been slower – why bring your house to market when there’s the risk that buyers won’t meet you on price.

“But the drop in listings volumes outside Auckland, in areas where property values have rising, is harder to explain. We’d expect to a dramatic shortening in the number of days to sell in rising markets but that hasn’t happened, and it’s likely that factor has affected seller sentiment.

“Rising property values can also be a double edged sword – sellers have to buy in the same rising market.”

Around the regions, where growth in volumes and prices continued long after Auckland softened, new listings before Christmas have not kept up with market demand. The Real Estate Institute of New Zealand (REINZ) reports total inventory by December had dropped to 17 weeks from last year’s 22 weeks.

REINZ chief executive Bindi Norwell sees that turning around as holiday period ends.

“Once people are back to work and school returns, we usually see activity pick up significantly in February and March,” she says.

“There’s nothing in the underlying fundamentals that we’re seeing at this point that would suggest this year is any different.”

“With vendor expectations up in more than half of the regions, I think people are starting to see the opportunities locally, but the lack of choice is certainly an issue for people.”

Daniel Coulson, Bayleys national head of residential, says that news of the pick-up in the market will have taken time to reach homeowners. But that’s changing quickly.

“Probably the change in the market conditions was not a surprise to the industry but to the general public it was,” he says.

“Judging by the level of enquiry over Christmas and January, it will lead to an upswing in listings into February.”

Coulson sees the market following a natural cycle after a period of stagnation, but says the growth with be slower than the double digit figures of 2015/16.

Around the country, the years of buoyant markets has meant demand is outstripping supply, but that that has been the case for some time, not just a result of the traditional spring uptick.

“There’s a massive pool of buyers out there and not enough supply,” says Simon Tremain, managing director of Tremain Hawkes Bay.

“People think there’s no real rush or urgency to come into the market.

Tremain adds that Hawkes Bay market definitely follows Auckland trends – some 20 to 25 percent of buyers are people moving from Auckland – so is just starting to see the effects of the Auckland spring turnaround. He says that buyers are learning that there are multiple offers on properties, so have raised their price expectations, but the good news hasn’t reached the supply side.

In Auckland, agents are raring to go, advising vendors who have been indecisive for the past year to go to market now to take advantage of the huge number of buyers out there and before other vendors decide to sell.

Dean Smith, sales manager for Ray White Central west, says don’t wait because the market has already picked up.

“We’ve had a record number of sales over the holiday period. Vendors are getting confidence.

“My advice to the vendors - is get on the market as soon as possible. Make hay while the sun shines.”

Diane Stevenson, principal at nearby Ray White Te Atatu, agrees, saying buyers are prepared, with finance sorted, often with cash offers.

“It's better they get on now rather than go ‘oh, I’ll wait a few weeks and see what happens in the market’ because then the buyers will have a bigger selection.”

The market is looking positive for February and March, she says.

“We’re looking forward to it; we’ve got our running shoes on ready to go.”

For Bayleys Bay of Plenty, Taranaki and Waikato, December 2019 was a record month, off the back of November which was the highest month ever in company records, beating even the 2016 peak.

Chief executive of the region, Simon Anderson, says that the confidence ran from top end right through to first home buyers and investor prices, and that vendors are responding with summer listing activity coming sooner than usual.

“There’s a lot of positivity in the market, we’re seeing really positive signs and people are making the decision to list.”

He said that high spring sales soaked up inventory, but vendors now seeing competition for properties driving up prices deciding it’s time to list. It’s not just confined to the eastern Bay of Plenty, as in Taranaki and Rotorua, both with confident economic conditions, demand is also heavy.

The Taranaki market got more competitive as last year progressed, says Bayleys general manager Dean File, with a lot more multiple offers and good auction results on properties. But while he expects the usual February pick up in listings, he doesn’t expect volumes as high as last year.

In Wellington, Joseph Lupi, the group owner of Century 21, thinks vendors haven’t been listing despite the ability to get good prices partly because of the low interest rates.

Wellington has a lot of investors so who are keeping their assets in real estate that earns a 4 to 5 per cent yield compared to only 2 per cent from the bank. The stability of being a government town helps.

“Wellington’s always been almost immune to the Auckland highs and lows. Wellington’s always been a steady ship.”

Brian King, general manager for Harcourts Hamilton City, says stock is low so when a good listing comes onto the market it gets fought over and flies out the door. He’s tipping that growth in the city’s population, driven partly by re-locating Aucklanders, will continue to mean buyers outweigh listings into this year.

In Whangarei, Ray White’s John Monteith, a town that also feels the flow-on from Aucklanders moving north, says that the frantic purchasing activity in November and December has soaked up a lot of stock. He says that while there’s the same number of motivated vendors – people with real reasons to sell – they’re not seeing the ‘just testing’ market, people who list only to see what price they’ll get.

He also says that the flurry of investors selling rental properties because they didn’t want to meet the new regulations has faded.

“We’ve still got vendors who haven’t got their head around the market. I’ve been 35 years in the business and our market has been affected by the Auckland with a six month lag, so the market will come back up here.”

Dunedin’s Joe Columb from Edinburgh Realty says that people aren’t listing, despite being able to get a good price.

Demand will keep outstripping supply for the foreseeable future, he says.

“I don’t think it’s going to change at all. I’ve been in real estate for 31 years and I’ve never seen so many people at open homes and just exponential growth in the values.

“People miss out on houses seven or eight times and they just throw the kitchen sink at it because they either pay more than what they think it’s worth or they just continually miss out. It’s a very difficult situation for first home buyers.”

However, around the country, agents are expecting a growth year, with vendors more confident and not wait to sell first before buying , as they did in the last 18 months.

“But it won’t be out of this world, it’ll be sustainable,” says Hawkes Bay's Tremain.

- additional reporting Catherine Masters