The head of Auckland’s biggest real estate agency says he wasn't surprised by the change in the market after last year's surge, but the extent of the downturn was a shock.
"This wasn’t out of the blue, though the severity of it has taken us by surprise," says Barfoot & Thompson managing director Peter Thompson.
He believes the market is heading into territory it hasn't experienced in more than 30 years.
“We’re not quite at 1987, [just after] the share market crash, but we’re heading down that level. But you’ve got to remember, real estate always bounces back, we’ll get through this short period and things will change. What we have learned from 1987 is that you don’t sell and make a huge loss, but hold on."
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New Zealand's economy in 2022 is different to the one in 1987, when inflation was running at 18.9% and the floating mortgage rates were above 20%.
Thompson did not characterise this month’s drop in sales numbers as a collapse.
In November his company reported 700 sales, slightly up from October’s figure but well down on the 1182 it recorded in November 2021.
"It’s hard because everyone is comparing to last year, which had the sharp increase. It’s come down, at the same rate as it went up.
“Prices should be compared to 2017, 2018, 2019. We’re down, but not as a big drop as versus 2021.”
Thompson was frank about the cost to real estate agents and offices expected next year.
“Layoffs will not be far off, the crucial period is the next two to three months for sales people.
“The top sales people get a higher commission percentage, so there’s less money for head office. We will see a few companies walking the tightrope in a couple of months.
“It’s very hard for [agents] as they’re commission only, so they’ve got to take the good with the bad. The experienced top people are still making the sales, they’re out doing the work and the customer service and communicating.”
He says the upper end of the market, where the company does about 35 to 38% of Auckland’s deals worth over $5m, and first home buyer segments have suffered less than the middle $1m to $2m market.
Thompson says not all vendors have understood the drop in prices. The company’s November median price of $1.065m is 2.5% down on last month and 14.1% off November a year ago.
Peter Thompson, managing director of Barfoot & Thompson, said layoffs could happen after the next two to three months. Photo / supplied
“Vendors have to price right to meet the market. There is still the odd vendor waiting for that big opportunity buyer to come along.
“But we’ve got some 5000 listings this year compared to 2000, so there’s more choice for buyers. If they’re not priced right, the vendor will lose the one opportunity to sell."
Thompson expects buyers switching to 7% mortgage interest rates after a comfortable five or six years paying 2% will have to adjust their expectations. "You’ve got to remember that [7%] is what it was in the normal days. In the last five years we’ve been on the lucky side. We guide buyers to a slightly more affordable suburb – Meadowbank, not Remuera; Mount Albert, not Mount Eden.”
Thompson isn't expecting an uptick in mortgagee sales, saying banks would not want to damage the market by selling for too low prices.
