ANALYSIS: Now that buyers have stepped back from the market and the frenzy is dead, the number of properties listed for sale is rising quite quickly. For the country overall, at the end of May listings stood at just over 25,200. This was a near 80% rise from 14,200 a year earlier. But there are some big differences between the regions.
In Auckland listings in the past year have risen by 57%, but in Wellington they are up almost 190%, Central North Island 162%, Hawke’s Bay 149%, and Bay of Plenty 142%. At the other end of the spectrum we have the stock of listings up just 2% in Central Otago (Queenstown and Wanaka largely), 16% on the West Coast (lots of flooding damage), and 40% in Gisborne.
Maybe these rises reflect simply some special circumstances of a year ago and we should be careful not to expect far greater price falls in Wellington, Hawke’s Bay and the middle of the North Island than elsewhere. To see how loose things really are we can look at how many weeks worth of sales the latest stock levels represent, then see how that compares with average.
Let’s do this for Auckland. The end of May stock represented about 24 weeks worth of sales, up from nine a year ago. At 24 weeks this measure of availability is 3 weeks longer than average for this time of year. Only Wellington is worse at five days and no other region is yet above average.
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We can confidently say that in Wellington and Auckland listings are quite plentiful compared with sales and getting more so. Things are almost average in Waikato, Hawke’s Bay and Dunedin. In Central Otago the level of stock measured as weeks worth of sales is 37 weeks shorter than average, almost unchanged from last year.
Tony Alexander: “People still ask me if I think prices will fall. They don’t realise they already have.” Photo / Fiona Goodall
We cannot yet say that buyers can pick and choose with vendors so desperate they will be able to snag a bargain. Prices haven’t been falling long enough for that to happen. In fact, plenty of people still ask me if I think prices will fall. They don’t realise they already have by 10% in Auckland and Wellington and on average about 3% elsewhere.
The lack of universal awareness that prices are already heading south tells us something important. We are nowhere near the capitulation point. This is the point in an easing cycle where asset owners holding out for a price they could have got in the past accept the new reality, shed their illusions, and cut prices to meet the market and get on with their lives.
This is an important point in an asset market because that is when those who have been around for a few cycles and have good cash and credit resources swoop in to pick up some bargains. For them, this is bread and butter riding of the cycle and they have already engaged in something I wrote about a year ago – selling off their crap.
When might this capitulation point come? Maybe around the turn of the year or a tad later. It will require higher mortgage rates, a lot more evidence of the brain drain, open talk of excess construction, and liquidators placing partially built properties of failed developers on the market to get what they can for the creditors. Those liquidations are only just starting.
When it starts, be aware of a whip back the other way when people realise failing developments mean growth in new house supply will be a lot less than they have been thinking. But that’s three stages from now.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
