House sale volumes this year could drop to levels not seen since the GFC, new research suggests.
According to figures from OneRoof and its data partner Valocity, the number of settled sales for the first six months of 2020 is 33,229 - 29 percent down on the previous six-month period.
The drop in sales is largely the result of the eight-week total shutdown of the housing market as the country battled Covid-19.
The dent could put the market on course for just over 80,000 total sales this year. The last time the sales volumes were that low was 2010, when total house sales were 83,701 and the housing market was still in a post-GFC slump. The last time they were below 80,000 was 1989, when sales totalled 76,015.
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OneRoof editor Owen Vaughan says: "Since the country has come out of lockdown the market has bounced back to pre-Covid levels, with attendance at open homes and auctions up and agencies reporting their best ever sales months.
"Low interest rates have largely fuelled the surge in buying activity but lack of stock on the market has also played a significant role.
"What's on the market is selling, but generally sale volumes have been sliding steadily since 2016."
Changing attitudes
Vaughan said it was possible to get a rough idea of what sales volumes might be for 2020 by adding total settled sales for the first half of this year to total sales for the second half of last year.
"Our projections put sales numbers for 2020 at 80,000 - almost 30,000 fewer sales than in 2019 and 43 percent down on total sales for 2016, the most recent market peak. By contrast, house prices have risen 32 percent nationally since 2016."
OneRoof and Valocity saw similar movements post-GFC. While the number of house sales dropped quickly and steeply, house prices fell only marginally.
The first time sales volumes broke the 100,000 mark in New Zealand was 1990, when total sales hit 101,746. The following year volumes dropped to 93,156 but from 1992 to 2007, volumes stayed above 100,000, with volumes hitting their peak in 2003, when 184,723 houses were sold.
Sales volumes dropped 43 percent between 2007 and 2008 and then averaged 90,000 until 2011, after which they steadily rose as the market found its feet again.
James Wilson, head of valuation at OneRoof’s data partner Valocity, says the rapid increase in sales in the 1990s and early 2000s was driven by changing attitudes to property in New Zealand.
“Before the 1990s most Kiwis bought homes to live in and held them for longer periods. But as people got wealthier, they started to trade houses more openly for investment purposes,” he says.
Psychological burden
Wilson says that while 2019's sales volumes are 40 percent below 2003's peak, and 20 percent below the 2016 peak the market isn't "falling off a cliff" as house prices have grown not dropped.
But, he adds, the Covid-19 lockdown will bring down sales volumes this year, and it's possible sales volumes won't return to 2016 levels any time soon.
He puts the drop in sales down to the overall level of affordability, as income growth has not grown anything like house prices in the past 20 years.
James Wilson: "Before the 1990s most Kiwis bought homes to live in and held them for longer periods." Photo / Supplied
“It’s a big psychological burden to take on $1 million or more mortgage, compared to $300,000 that's a scary number.”
Vaughan says the drop in sales volumes in Auckland is particularly acute, and a reflection of the slump in the city's housing market. Auckland sales were at their highest point post-GFC in 2015 when 42,863 properties traded hands. They dropped 16 percent to 35,698 in 2016, and then 27 percent to 25,956 in 2017.
"For the last two years, Auckland house sales have settled around the 25,000 mark, and the revival in the city's housing market at the end of last year and start of this year was expected to improve volumes. Covid-19 will undoubtedly put the brakes on that. Surprisingly, while the market in the city has seen a lot of heat post-lockdown, homeowners still seem reluctant to list."
Sticking plasters
Economist Benje Patterson says that New Zealand will likely see a repeat of the drops in sales volume that followed the GFC, but "it will not be as sharp".
He says the fact that the Government immediately "brought out the first aid kit" at the start of the pandemic has helped.
"But a lot of sticking plasters have been applied; there are so many over so many things that we don't know what's going to be underneath when we tear them off."
Patterson says that people's behaviour has been modified by the crisis, so to sell up and move is still a big decision for some, even with buyers out there with extra money in their pockets.
"They're worried about the timing and longevity of this trend. They see the 'retail sugar rush' but they don't know when the mortgage holiday will come off," he adds, pointing to clear signs of weaknesses in the June quarter labour market figures.
"Spring is not going to be as hot, is my pick. The caution is going to keep coming out in many different areas and that will subdue the property market. People's willingness to list will drop."
Patterson says the recent surge of Covid-19 cases in Australia will affect confidence.
"Even Victoria is beginning to weigh on my own behaviour. It is tempering my commitment to make long term financial plans."
