Twelve months ago, buyers were on the back foot and needing to bid hard to secure what stock was on the market. Clearance rates at auctions were at record highs, properties sold at premium prices and the prevailing sentiment driving the market was FOMO – fear of missing out.
But now FOMO has replaced by FOOP – fear of overpaying.
After a nationwide lift in the average property value of 25% - and in some regions 30% - the balance of power appears to have shifted to buyers.
Figures released by the Real Estate Institute of New Zealand earlier this month showed a drop in sales and two successive months of house price drops.
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Finding a bargain as vendors slowly come to terms with a downward shift in the market – driven by interest rate rises, a tightening of credit and an increase of stock – will be tricky though.
James Wilson, head of valuations at OneRoof’s data partner, Valocity, says it’s difficult to pick which region or area is most vulnerable to softening prices, as each region has its own sub-markets, and waiting for prices to fall may not be the best strategy.
For example, new builds continue to be more in demand as a general rule than existing homes. “We're still seeing really strong demand for new builds in the right locations,” Wilson says. Off the plan and new build homes are popular with first home buyers thanks to lower deposit requirements and with investors because they come with tax breaks.
Every market will have pockets that do better and worse than others, Wilson says. “There are a lot of sub markets.”
Whether buyers are looking at a regional centre or a suburb in one of the bigger cities, they will still need to do their due diligence, and look at what’s been selling or failing to sell and who’s been buying. Rotorua and Gisborne, for example, have been targeted by investors over the past few years, and policy measures aimed at investors have led to some investors either retreating from those markets or selling up, which can affect the equilibrium of that market.
Rotorua’s market has been propped up by investors but now prices have started to soften. Photo / Getty Images
On the other hand, Whanganui, and the urban centres of Hawke’s Bay have attracted movers, first home buyers and investors. “Those locations have got a greater chance of sustaining that growth than an area that's been propped up by just one group.
In cities such as Christchurch both trends can be seen, says Wilson. Investors have targeted the central city, which is more at risk of price falls now, but all three groups have shown interest in locations such as new developments in Waimakariri, which is more likely to hold firm as a result.
Buyers can sometimes act irrationally when the market slows. Instead of seeing opportunities they pull back. The irony of falling prices is that buyers often focus on negative headlines and fail to act as a result, says Nick Gentle, a property finder and administrator of the Facebook group Property Investors Chat Group NZ.
“My first piece of advice is, stay calm and remember that your job is to buy well. It’s easier when there are fewer buyers. You've got more time,” he says.
“You’ll probably get good terms on your offers,” he adds. An example might be getting 10 days for due diligence on the purchase before going unconditional. “Whereas in the past. You have to be unconditional 10 minutes after [the home was listed].”
Valocity head of valuations James Wilson says waiting for prices to fall may not be the best strategy. Photo / Fiona Goodall
Price falls, or gains, however, are always nuanced, says Gentle. “I live in Rotorua. If all the sales are in the lower socio-economic suburbs, the median sales price is going to go through the floor. Not because house prices have dropped. It’s just because there are not enough high price houses selling to keep the (median) high.”
Buyers who are holding out for a crash in prices might come away disappointed. “As an investor you always look back to the last slowdown.” People who put off buying during the 2009 to 2011 period in Auckland, or as late as 2014/15 in other parts of the country, often regret their inaction, he says.
Barfoot & Thompson auctioneer Murray Smith agrees that buyers sometimes pull back when they should take the opportunities: “When the cream comes off the top, buyers go, ‘I'm not going to do that because the market has gone quiet’,” says Smith. “And yet that's the time, they should be taking advantage. They can be a bit lemming like.”
By the time buyers get their nerve back, the opportunities may be gone, says Smith. “I’ve been doing this a long time and then when the market pulls back a little bit, it’s never normally for very long. By the time everyone starts talking about it, it's halfway done.
Kiwibank chief economist Jarrod Kerr says buyers who want to take advantage of the market should get their finances sorted. “ That's the hardest part right now,” says Kerr. “Banks want to lend but they're being constrained by the CCCFA [Credit Contracts and Consumer Finance Act] regulations .
“Get your finance sorted, then take your time,” says Kerr. “Look at all properties and keep your options open.”
Smith says if he was a buyer in this market, he’d be committing to the goal of walking out of the auction room owning the property. Smith cites an example from mid-February. “There were a number of conversations I had with buyers who were bidding by phone. They said, ‘We'll just wait.’ By waiting they're exposing themselves to competition from other parties. Yet they might have been sitting in the auction room as the only buyer for the property.”
Smith says buyers need to be aware that vendors aren’t going to drop their price by huge sums. “People have all sudden began to believe they’ll get a half-price discount. It's not the Boxing Day sales.”
Sensible negotiation makes more sense. “If the vendor is committed to moving on, they might decide to come back a little bit on what they want. If you can match that with, go close to that as a buyer, the owner might just go 'oh yeah I'll do it'.”
