What to expect this winter
Navigating a changing property market
If you’re an active agent in your market, you’ll have had a first quarter this year that looked quite different from those you’ve had in the last two years.
Your vendors and buyers may be unnerved by the almost daily headlines trumpeting the news that property prices are falling across the country, or are forecast to do so.
Much has been written about buyers operating in a constrained lending environment. Those who would normally have been granted mortgages have been turned down or told they can’t borrow as much as they had hoped. Those who assumed they’d get bridging financing as they go from one home to the next, have found this much harder to do if not impossible to secure, and house hunters are making conditional offers on selling their existing home, leading to a long drawn out “chain” process for everyone.
Harcourts Managing Director, Bryan Thomson takes issue with the warnings about price falls coming from economists and the Reserve Bank
“The biggest trouble we have is the information being put into the market place by financial institutions and central banking, manipulating people’s thinking when it’s not actually true,” he says
Predictions of house price falls happened as the country went into Covid in 2020 and commentators were totally incorrect, claims Bryan.
The Harcourts head doesn’t like the term, ‘the party’s over.’ Marketwise, it’s been exceptional but we are now back to normal with people still looking to sell and buy, he says.
Get your head out of, “it’s going to be really bad,” he adds. In terms of shrinkage, it’s not even back to June last year yet,” he points out.
“I think we all know that the last couple of years have been unusual,” says Bryan. “Sales volumes and price growth have been exceptional, we’re just going through a rebalancing. The public are not stupid, they know what’s going on.”
The agency head thinks vendors are coming to terms with new prices. “They’re not selling for fun, they’ve got a reason to sell,” he adds.
As for the agent’s role, in a market like this, people will need a real estate professional to supply vendors with factual information. Agents should be professional and deliver the facts in a manner that can be easily consumed and mulled over.
“For instance, they’ll talk about what has sold recently, what competition there will be for property, what strategies are working right now, and this will help sellers to make strong, confident decisions,” says the Harcourts MD.
As for working with buyers, it’s about understanding their parameters and showing them properties that meet their criteria. The worst thing is for them to be thinking they’re going to time the market and buy better, he says.
“Timing the market is not the secret. I’ve never met anyone who has bought a house that suits them and then worries what they paid,” says Bryan.
When a property isn't selling
Meanwhile, if you’ve got a listing that’s lingering on the market, there’s usually two or three reasons why, says the Harcourts MD.
It might not be being presented well. For instance, it’s being presented as the vendor used to live in it, but not for the market. Or the vendor may not be investing enough in the marketing or the message is misdirected to make the seller feel good rather than the buyer, suggests Bryan.
And third, the vendor wants too much money and the agent hasn’t had the discussion with them.
The facts about the market at the moment
Looking at the latest facts on the market, Quotable Value has put out some fresh information. Average house prices nationally were down 2.2% over three months to the end of April, Wellington had a fall of 3.6%, while Auckland fell 3.1%.
The Trade Me Property Price Index, meanwhile, out late April, found that March saw the largest number of properties for sale on record in Wellington, Hawke’s Bay and Manawatū-Whanganui regions. There was also a spike in the number of Kiwis looking at properties in every region across the country, with a 14% increase in views compared with February. At the same time, nationwide, a new record of $992,050 was set for average asking prices for medium sized properties (three to four bedroom), a year-on-year increase of 22%.
Thanks to LVR speed limits and a stricter lender environment, first home buyers have been particularly hampered from buying even though it’s been a less competitive housing market. In the first three months of 2022, first home buyers made up 22.5% of all buyers compared to 26% in the second half of 2021, says CoreLogic’s latest First Home Buyers’ report.
When asked what effect the easing, in June or July of the Consumer Contracts and Consumer Finance Act (CCCFA) rules might have, CoreLogic head of research, Nick Goodall, says: “We do think we’ll be coming out of the tightest credit situation we’ve seen. There won’t be a flood of new buyers to the market but banks have tightened up more than they had to,” he says.
Banks are already opening up a little bit on pre-approvals with their own customers, says Nick. On the flip side he’s not expecting LVRs to loosen up any time soon.
Agents and their vendors will need to be prepared to market homes for longer periods and activity will reduce in the market as we go into winter, he predicts.
For those selling in the middle to upper market, transactions will continue as people have decent equity in their homes and secure jobs. Sellers will find buyers if their property ticks the boxes, says the CoreLogic head of research.
Listing volumes good news for buyers and general activity
Ray White’s Chief Operating Officer (COO) Daniel Coulson says, with a good volume of listings in May, it may be a good time to sell then buy rather than the other way round, which has been popular for the past year or two as people had no trouble selling. Now, thanks to more properties being on the market, buyers are likely to find something they like after they sell.
And Ray White is certainly seeing a lift in supply. Looking at its nationwide figures, its volume of listings is up 70% and sales volumes are down 30% on the same time last year.
With this information, how do agents proceed? Daniel says: “If sales people are sitting there and waiting for market conditions to influence what their business is going to look like over 12 months, that's going to be a damaging mindset to be in.”
“We know that there are still some people wanting or needing to transact both on the buying and selling side of the equation,” he says.
Sellers are more realistic, he adds. Before, vendors were coming to Ray White agents wanting a price for their home and the sale was secondary. Now, people are wanting a sale primarily and then the price, while close, comes second.
“The focus of our job is to deliver credible information so vendors can make sound decisions,” says the COO.
Let’s not get caught up in what the market’s going to be like in 12 months, he advises. Right now, people are talking to us wanting and needing to transact. A good agent will be looking to add value.
And agents should be ready with some responses to buyers’ objections.
“If buyers are telling you that they won’t buy today because properties will be cheaper in six months time, or the CCCFA tweaks will make borrowing easier, there’s one guarantee, there will be something else influencing the market in a few months time that we’re not yet talking about,” predicts Daniel.
People can get caught up in overestimating the importance of a price change up or down, adds the Ray White COO.
And if vendors are wringing their hands that they might have to drop their price slightly they perhaps need reminding that unless they’ve bought in the last 12 months they’ve probably had over 25% value added to the value of their house.
“If you owned your property going into the pandemic, your net position is so much stronger than the beginning of 2020,” says Daniel.
Better management of buyers and sellers
The message Bayleys National Director of Residential, Johnny Sinclair is giving to his agents in the changing market is simple.
“For us, the focus is very clear, it’s about vendor and buyer management, and working very closely with the vendors to see where their motivations lie,” he says.
Agents must also look after buyers and hold onto them because they are fewer and further between, he notes.
Vendors will be looking for excellent agents to handle their sale in this market. “It’s pretty easy to sell in a buoyant market. There will be a flight for quality in a tough market, If you’ve got an agent who’s cracked it in a tougher market, you’ve got something special,” says Johnny.
The upper mid and upper markets are still quite buoyant, adds Johnny, because they’ve not got the reliance on cash flow and buyers in this price bracket have more equity in their current homes.
And Bayleys’ agents, whose listings are up 10% on this time last year, will be informing their vendors about what to expect in the current market.
“In the last three years, homes have gone up circa 45%. What we’ll see might be a correction of 10%, or as much as 20% if it’s a leaky home. But that’s still a net capital gain of 25% to 30%.”
And out in the market, there’s something there for everyone, says Johnny.
A top Bayleys agent in Havelock North, who normally has 50 people through his open homes, told Johnny the numbers are more like five at the moment. But the agent said these five buyers are high quality and ready to act.
How Wellington agents are coping with price drops
Quotable Value says that the capital, which has seen some of the highest price rises over 2020 and 2021, is experiencing some of the country’s biggest price falls at the moment.
Senior agent at Wellington agency, Tommy’s Real Estate, Nicki Cruickshank is unperturbed. “We’ve had such good times for four years but you’ve got to take the good with the bad. In my view real estate will just keep transacting.”
Tommy’s has had a rush of listings in the last month of April, it’s been like a spring rush for Wellington, says the agent.
“The main reason for this was people had been sitting on their hands but couldn’t find anything to buy and they had a house to sell. But with more stock on the market, people are more confident about finding something,” says Nicki. And, in this market, they can make their offer subject to the sale of their own house.
“Conditional offers are becoming the norm” she adds.
And vendors are pragmatic, explains the Tommy’s agent. They’re aware that the price has dropped by as much as 10% in their expectations but they realise this is the real world, she says.
And they might be pleasantly surprised. People buy what they want to buy, says Nicki.“Good family homes in Wellington will always sell well no matter what the market,” she says.
As for the flow of listings over the next couple of months, Nicki says,“We’ve still got good numbers coming on, it’s bucking the trend. It feels like it’s more consistent all year round.”
What mortgage advisors say
Leading Loan Market mortgage adviser, Bruce Patten, says for sellers waiting on the tweaks to come on from CCCFA in June/July, it’s possible that the can could get kicked down the road. Having said that, the minute the legislation for CCCFA is passed, banks will be ready to change, he says.
He thinks the CCCFA changes will give the property market a bit of a boost. And LVRs might pull back as well, which will help first home buyers more than anyone else. But the reality is we’re destined for a much tougher market, he predicts.
There are still some vendors expecting the pricing that they could have got in December and that’s why you’re seeing some homes not sell, says Bruce.
“Good agents will be conditioning their clients and letting them know it’s not the same market as it was. I see lots of my clients come to me and show me their home appraisal. I look at it and say, but that was the price in December.”
One excellent agent he knows is telling people realistically what their house is likely to sell for in the current market when pitching for the business. And if they don’t like it, she doesn’t want their business.
The mortgage adviser meanwhile has five deals on the go where the people bought in December unconditionally and negotiated a long settlement. Unfortunately, they’ve not sold the house and they can’t get bridging finance.
Agents shouldn’t encourage people to make those sorts of decisions, he says. If they can’t get bridging finance they might lose their deposit.
Staying resilient in a cooling market essential
The Real Estate Authority issued a media release in early May acknowledging the challenges and risks of a changing market for both agents and consumers.
REA Chief Executive Belinda Moffatt said that in a cooling market vendors might exert increased pressure on real estate professionals to secure a sale, but it was critical that disclosure obligations not be overlooked in the process.
Belinda says: “This market will require a high level of professional skill and care from licensees to meet their regulatory obligations for fairness to all parties and to manage pressure from vendors to secure sales.”
She adds: “We appreciate that licensees will also be concerned about their own revenue, particularly those who provide jobs for administrative and other support staff.”
But consumer confidence is essential for a resilient market and this includes confidence in the professional conduct and fairness of the property buying and selling process, she adds.
The REA CEO notes that agent numbers in the country have steadily risen in the last two years to 16,692 active licensees and these have not reduced in the cooling market yet.
The industry has seen an influx of younger professional people with skills in technology and a real commitment to their real estate career, says Harcourts’ Bryan Thomson.
“They’re the changing face of the industry. We are not a second or third career, a lot of people are choosing the profession because of what it offers,” he says.
“I think to be successful in any profession you have to have a level of resilience. People might have to deliver reality to their vendors in the next 12 months and if you don’t have a level of professional self-confidence then it can be quite difficult,” adds Bryan.