Is new market optimism unfounded or a sign that real estate will weather the fallout from the coronavirus? OneRoof and Valocity's new property value index shows the extent of the rebound post-lockdown and shows where the market has potential to grow and where the risks lie.
As the coronavirus crisis hammers housing markets around the world, New Zealand has found itself in a surprising and enviable position.
The country was one of the quickest to flatten the curve and emerge from stringent lockdown measures that, in effect, put real estate transactions on hold for more than a month.
In the month since the country was opened up for business again, the housing market has defied early predictions of big price drops and, in some locations and segments, bounced back with some strength.
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But beyond the standout sales, there is still concern that there is weakness in the market (global ratings agency S&P last week tipped New Zealand house prices to fall 10 percent) and that the heat some sellers are feeling in their campaigns isn't universal.
The big challenge for buyers and sellers right now is that the normal measures of market health have been made redundant by Covid-19.
James Wilson, director of valuation at OneRoof's data partner Valocity, said: "When we look at the market using traditional methodology, comparing activity now to activity 12 months ago, we see that only two territorial authorities - Kaipara and Selwyn - have seen declines in property values and that 38 have enjoyed more than 10 percent growth.
"This gives a false impression of what's going on in the market. Yes, property values are up but that's more a reflection of the fact that these locations were experiencing value growth in the three to six months before lockdown.
"And it shouldn't be glossed over either that 27 of TAs that showed growth had median property values of less than $500,000."
How do you measure the market post-lockdown?
Wilson says the nature of the virus and the lockdown that was brought in to combat it put the market in a new territory. "Looking to past calamities for clues to market performance can only get us so far. The GFC was a banking-led crisis and didn't shut down the market and push the wider economy to the brink of ruin.
"So how do you measure value when there has been little to no sales activity? To answer this we have created an index that covers a range of different market metrics, not just the median sales price of what has transacted.
"By breaking down what’s been selling together with the nature of the housing stock in any given location we can track more effectively the actual changes in individual submarkets."
The OneRoof-Valocity index sets as its baseline property values on March 25, 2020, the day before the country went into alert level four lockdown. Every sale since that date has then been analysed, a value applied which is then tracked in accordance with the baseline value, allowing subtle changes in the market to be measured.
"Using such a benchmark index allows us to use the limited sales which have transacted since lockdown by individually applying them to the index, removing the impact that low volumes and sales composition can have on metrics such as median sale price."
The index clearly shows the impact of the lockdown on the housing market and the extent of the bounce-back in each TA and region.
Of the 16 major regions in New Zealand, 12 have seen declines since March 25 - the day before the country went into month-long lockdown - with values in the remaining regions stalling.
Auckland values bounced back from their post-lockdown drop, but are still quite soft, (currently down 1.6 percent from March 25). Of the city's sub-markets, Auckland City and Rodney are in strongest position, with values in each dropping less than 2 percent. The North Shore is in the weakest position, dropping 3.8 percent on the index, but Wilson notes that the index also clearly shows the erosion in property values isn't a crash. "North Shore values are where they were at the start of February, when the market there was picking up speed. Auckland City is back to where it was at the end of January," he says.
"The index also shows that the North Shore had the steepest hill to climb following last year's slump."
The best performing TA was Rotorua (up 4.6 percent on the index) but low sales volumes there make it hard to measure the market with accuracy. The best-performing TA with solid sales volumes was Lower Hutt, which was up 1.1 percent.
The biggest faller on the index was Queenstown Lakes (-7.7 percent), but it too has suffered low sales volumes. The weakest TAs with high sales volumes were Auckland North (-3.8 percent) and Christchurch (-3 percent).
The worst performing regions were West Coast (-5.7 percent), Otago (-2.47 percent) and Northland (-2.11 percent), while the best-performing regions on the index were the Bay of Plenty (up 1.5 percent), Southland (up 0.7 percent) and Waikato (up 0.4 percent).
Wilson says: "With the index, we can start to judge whether the better than expected market activity post lockdown is a dead cat bounce or an indication that the underlying drivers of the market pre-lockdown are still in play."
Deciphering auction sales and open home attendance
Judging the future of the market based on the sales activity since the move to alert level two has been a challenge for the industry, too, which was just as surprised by demand levels as the rest of the country.
Barfoot and Thompson national auction manager Campbell Dunoon says he is still deciphering what the patterns are, as auction action changes week to week. Last week Barfoot and Thompson sold a 1950s three-bedroom home in double grammar zone for $3.584 million, more than $500,000 above its council valuation, and at the end of May sold what could be this year's most expensive piece of real estate - a 1960s clifftop home in Remeura that went for $8 million.
But not everything is selling fast and for eye-brow-raising prices. While some auctions have enjoyed 80 to 100 percent clearance rates, others have been more subdued and homes have sold below their rating valuation.
This deceased estate at 34 Trafalgar Street, Onehunga, Auckland, attracted 32 registered bidders. Photo / Supplied
“But we do notice that the auction rooms are full," Dunoon says.
“People are there to bid but are also looking to see what is happening. It’s hard to pick a pattern on what’s sold, other than there’s a general interest in property.”
The real estate agencies are in agreement that bargain-hunters hoping to cash in on a post-Covid-19 property price drop have been sorely disappointed.
Ray White chief auctioneer John Bowring puts the sales successes down to not enough houses on the market to meet buyer demand.
“Even if the new normal is that we’ve only got half the stock [to sell], we’ve still got more buyers looking for properties. It’s always going to be a supply and demand issue.” he says.
“And the signals are that prices won't fall back.”
‘If it’s a good place, buyers turn up in droves’
Harcourts national auction manager Aaron Davis says the market has defied predictions of house price drops and that buyers need to be realistic about price. “In the quality markets, there are three or more bidders and you’ve got to fight for it,” he says.
No matter what the rest of the market may be doing, he says, “good property is always good, at all price points” and buyers hoping for bargains will be disappointed. “A bargain is only a bargain if no one else wants it,” he says.
Bowring has seen sale prices regularly eclipse pre-auction offers. Two bidders recently drove the price of a property in Grand Drive, Remuera, to $2.536 million, well above its $2.3 million pre-auction offer, he says.
While “good’ is an elusive definition, certainly good bones in desirable areas helps, with several do-up villas and bungalows in Auckland's Ponsonby, Grey Lynn and Kingsland fetching well over $1m under the hammer.
Bowring says: “If it’s a good place, buyers turn up in droves. But if it’s not 100 percent, they just don’t show up. Banks are driving that more than anything else."
Harcourts Cooper & Co auctioneer Andrew North, who operates on Auckland’s North Shore, agrees that strong properties are gaining attention, citing one recent auction he called where one home had six bidders, but others had only one or two.
“Four were pulled forward with reasonable offers, so the owners are saying, ‘I might just grab this’. There are balanced, realistic sellers.”
15 Blakeborough Drive, in Forrest Hill, on Auckland's North Shore, had six bidders fighting it out a recent Harcourts auction and finally sold for $1.605 million. Photo / Supplied
North says that supply is tight. His rule of thumb for the North Shore is that anything less than 1400 listings makes for a seller’s market. “At 1500 it’s neutral. Once it gets to 1600 to 1700 it becomes a buyer's market. Until we see a flood to the market, there’ll be no fall in prices.”
He suspects would-be sellers are choosing to renovate rather than trade houses.
In some markets buyers are waiting for properties to pass in before making a move. Last month an auction of 22 properties in the Queenstown area made headlines when only six properties sold on the day, with the remaining homes passing in. Fast forward four weeks and 60 percent have now sold.
Bayleys auction manager Conor Patton, who called Queenstown auction, says: "The market is returning to normal levels and that pent-up excitement post-lockdown has settled."
He still sees the value in auctions. "Vendors want certainty and auctions provide that."
Bowring is also seeing buyers who don’t want to buy unconditionally at auction, so wait for the property to pass in. In some cases, those properties have multiple offers within two or three days of auction, he says.
As to whether the post-lockdown bounce will turn into longer-term buoyancy, auctioneers aren’t sure.
“No one can tell with any accuracy, none of us know if this is a trend, but I’m buoyed by what I see,” says Davis.
Bowring adds: “It’s interesting, but I don’t think anyone knows. It’s week to week."
Not enough stock
All the auctioneers are clear on one thing – there is simply not enough stock on the market to meet buyer demand.
Derek von Sturmer, an agent with Professionals in Auckland's Point Chev, says he’s never seen such crowds at open homes as he has in the past few weeks.
“One we had close to 60 people in the house. We had people everywhere,” he says.
2 Walford Street, in Pt Chev, Auckland, sold within seven days. Photo / Supplied
In mid-May, Von Sturmer sold a stylish three-year-old house in Walford Road within seven days. Another this month was snapped up within six days of hitting the market. He predicts the five or six new listings he’s bringing to market this week will all be snapped up. One house has had 131 enquiries in six days, he says.
Similarly, Bayleys agent Christine Birss had an unconditional offer on a multi-million-dollar property in Langs Beach only four days after listing.
Von Sturmer says he could easily sell another 10 to 15 houses in the $1 million to $2 million price range.
“Last week my team had 24 offers on seven properties. It’s not showing any signs of slowing down."
Here are the latest property values, together with annual change in growth, which only tells part of the story.
