‘You can’t afford to make mistakes in a softening market’

House prices are falling. After 18 months of rapid growth that saw New Zealand’s average property value rise from just below $800,000 to just over $1.1 million, the market has suddenly shifted down a gear - a new experience for homeowners who may have become accustomed to ever-rising prices.

Figures released earlier month by the Real Estate Institute of New Zealand showed that the nationwide average house price fell 1.1% in December and 1.5% in January. In Auckland average prices fell by 2.6% after falling 2.4% in December.

The banks are predicting further house price falls. ANZ has its money on a 7% fall, while ASB has predicted a 6% fall by the close of 2022.

Kiwibank bucks the trend, however, and is predicting a 1% to 2% fall. The bank’s chief economist, Jarrod Kerr, says: "We are not expecting the big declines other banks are predicting. That's because we believe the housing market still quite tight.

“Although more supply is coming on board, there's still a big shortage [of homes] to start with. Interest rates are rising. But we're not in a position where unemployment is spiking, which you generally see with larger falls in prices where people are forced to sell.”

The drivers behind the slide in prices are varied, he says. "There is a whole raft of issues - the CCCFA, LVRs, DTIs, housing supply picking up, interest rates rising. A whole lot of things have changed in the last six months.”

Sellers are, as a result, far less likely to find hot competition for their homes and may not get the prices they had hoped for. Kerr says the era of home fetching well above initial estimations looks to have come to an end.

“Vendors have to have a realistic expectation of what they're going to get. Last year, they were clearly getting much more than they would have anticipated. Prices were surging, and the market was incredibly heated.”

Kiwibank chief economist Jarrod Kerr: "We are not expecting big declines.” Photo / Supplied

Kerr says Auckland is the most overvalued market and is more at risk of a price correction. That will hit vendors, but provide opportunities for buyers.

“Wellington is not as bad, but affordability is still a problem, and Christchurch is probably the more balanced housing market.”

James Wilson, head of valuations at OneRoof’s data partner, Valocity, says markets that have attracted interest from not only first home buyers but also movers and investors are likely to hold their prices better than those favoured by just one buyer group. Likewise, some types of property are withstanding the downwards pressure better, including new builds, and lifestyle properties on the outskirts of cities.

“I think if you are a seller, basically ignore the headlines a wee bit and understand what's happening under the surface,” Wilson says. “You simply can't say Auckland is more prone than Wellington because there are too many sub markets at play.”

“The first advice for a seller is: understand where your property fits in the market. Is it a dwelling that will appeal to first-time buyers, movers and investors? Or is it a city apartment which really is only going to appeal to first home buyers or investor.”

Valocity head of valuations James Wilson says vendors need understand the market they are in. Photo / Fiona Goodall

He adds: “You can’t afford to make mistakes in a softening market. In a good market, if you make a slight mistake, then the market will usually protect you. Whereas in a softer market a mistake might impact the price you get.”

Wilson says homeowners should think hard about the sales method as well. That, says Harsimran Singh, owner of four Harcourts agencies in South Auckland, should be auction in the current market. Owners who opt for price by negotiation may put too high a value on their properties, whereas an auction will flush out what the market thinks the home is worth.

“We are still strong advocates of the auction process,” says Singh. “Owners are still sitting back and expecting results similar to what we saw a couple of months ago. However, the buyers are seeing a different picture. Auctions are the only process where we can give actual live feedback to the owners.

“Even if the property fails to sell at an auction, then at least we've got a clear idea of where market sees value and we can then price the property sharp enough so that any potential conditional buyers can be worked with.”

It's not uncommon currently for vendors to be out of touch with the price their home will fetch. Barfoot & Thompson auctioneer Murray Smith says owners often look back at the growth curve and base their price expectations from a year ago.

“That growth curve is not going to be the same and vendors need to look at what’s in front of them and be pragmatic,” says Smith.

“Most people buy and sell in the same market? In a funny way it doesn't really matter a great deal of what the number is.”

He adds: “Every sale is not only about price, but about what they want to achieve in the next phase of their life - whatever that might be.”