Auckland's housing market is returning to life, but something else is back: chain sales.
For the past year or so, real estate agents were facing a market where house hunters were only prepared to buy once they had sold their home and were cashed up, anxious that they may be caught in a finance crunch if they were slow to sell.
Today’s chains – the term used when a series of house purchases are linked by buyers needing to sell a property to complete purchase of the next house - are slowing the market.
Auckland’s largest real estate agency, Barfoot & Thompson, reported their highest September sales for three months. That’s 771 properties, helped by a 12 percent pick up in new listings in September compared to the average for the three months of winter.
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But managing director Peter Thompson hedges that that listings need to be better to meet demand.
“Available [stock of listings] numbers at month end have now declined month on month for six months,” he says.
“At the end of September we had only 3,694 properties on our books, the lowest number in 32 months. You need to go back to 2016, when the market was at its most active, to see the number of properties for sale so low.
“With restricted choice and increased competition on the auction floor, or post auction, there was no pressure on prices to decline.”
The Real Estate Institute of New Zealand is hopeful the lifting market means speedier turnaround in sales.
“Hopefully we’ll start to see less people taking a ‘chain’ approach to buying and selling which will help speed up the process for buyers and sellers,” says REINZ Chief Executive Bindi Norwell.
“For the first 8 months of 2019 we’ve seen 3,624 fewer new listings across the country than at the same time last year, which is indicating that people are waiting to purchase a new home before putting their current property on the market. This approach has slowed down the whole market.
“We’re only hearing of a handful of instances of people selling first, based on anecdotal feedback from our members.”
Ray White Remuera agent Donna Watts says that many of her clients in the eastern bays were reluctant to put their properties on the market until they found something new.
“Now they’re buying conditional on selling their home,” she says. “But that means that settlement time frames can be up to a three or four month window. Even when they are selling at auction, the vendor can put a long settlement date, so they get time to find something. “
She says a lot of her vendors are able to buy without selling, so are waiting until they find a new place before putting their old home on the market. The shortage of stock added to the long settlement for older home movers, cashed up hunters and new first home buyers, all add up to mean more buyers than sellers.
“I’ve not seen so many buyers out there since the OCR dropped. All of a sudden people have more borrowing power with lower interest rates, so we are getting good numbers through open homes.”
John Bolton, of Squirrel Mortgages, says that he is seeing the usual busy spring burst of borrowing, but has also started to see people wanting to buy subject to settling on selling their own property.
He warns that banks are particularly tough on finance for open bridging that is borrowing to buy a property when your own home has not sold, or is not even on the market.
“That’s hard. The bank wants to know can you afford both mortgages. We’re just not seeing those open bridge contracts, but we are seeing contracts with longer settlements of a 12 week period.”
Known as closed bridging, borrowing to cover the gap when a property has been sold and is under settlement is much more common and easier with the banks. Bolton says banks apply a standard mortgage rate, but with tighter credit criteria, whereas having to use a second tier lender comes at a price, with interest rates at between 7 and 8 percent.
“Bridging is stepping up the property level. I’m seeing just a little bit more, just because the market is heating up,” Bolton says. “This might be the time to sell, there’s just a little bit more confidence, and little green shoots popping up.”
“This is one hundred percent driven by confidence: people upgrade when they’re feeling a bit better about the world.”
The Real Estate Authority warns buyers in a chain to take advice from your bank if you’re at the end point of a chain. If the first transaction doesn’t settle, it might impact on buyers’ ability to settle which means paying penalty interest to the vendor, or getting bridging finance.
The Real Estate Institute of New Zealand is hopeful the lifting market means speedier turnaround in sales.
“With the warmer weather, the uplift in consumer confidence and the recent OCR cuts, we hope to see more listings coming to the market which means more choice for buyers,” says Norwell.
