Don’t hold your breath for bargains
Buyers are hopeful but there aren’t many cut-price sales yet, writes Tony Alexander.
Each month I run a survey of the real estate agents on my subscription list, asking them what they are seeing in buyer and seller behaviour. Obviously at the moment things are in a state of considerable flux. Most of us expect house prices will fall, but transaction numbers are low so it is hard to know what is happening.
The results of this month’s survey, which will be released tomorrow, do not yet give much credence to any theory that prices will fall substantially – except maybe in Queenstown, but even there the picture is mixed.
Buyers are certainly looking for lower prices. But they are acutely aware that properties have been in very short supply in recent years. Vendors know this, and that is a key factor in explaining why so far, price movement downward has been very limited.
It is not just the traditional fact that time has to pass before vendors are forced into meeting the market. Most do not have to sell, so they are withdrawing their listings.
This means that although for the moment turnover is constrained by the lockdown and property visits being limited to two a day, once we enter level 2, turnover is likely to stay low once delayed settlements are completed.
In fact, it’s hard to imagine anything but low turnover with winter coming and a general election right at the start of spring.
One agent surveyed their client base of buyers and found 85 per cent who were looking prelockdown were still looking, while 15 per cent said they would wait to see how things went in the near future.
In Queenstown, listings for entry-level housing have jumped, and there appears some acceptance of the view that prices for these properties will fall 20 per cent to 30 per cent. But for high-priced properties the main development so far has been a rise in buyer inquiry from people bringing forward long-cherished plans to secure a holiday home.
In Auckland, buyer inquiry has remained firm for properties priced up to $1.4 million, spurred perhaps by frustrated buyers facing listings shortages now hoping they can finally find something to purchase. Some agents have noted a rise in inquiry for properties further out from the CBD now that people can do more of their work from home.
In contrast, more vendors are coming forward in the CBD apartment market, wanting to sell because their properties were on Airbnb but now face lengthy periods unoccupied, because they are non-residents and can’t access their apartment, because they want more space, or because foreign student tenants are absent.
More sellers seem likely if New Zealand hotels go down the road of some in Australia, offering rooms for rent to long-term tenants at market rental rates.
Agents are also noting inquiries coming from Kiwi couples coming back from overseas or recently returned.
As an aside, a large business broker noted an increase in exactly these sorts of people who are cashed up and looking to buy a business, anticipating that this can deliver the good income they know they won’t find by trading down to a New Zealand-level salary.
Income search was also noted by many agents in the form of investors, even those in retirement, seeking rental properties because bank deposit returns are so low and they have become scared of shares.
One significant development this past fortnight has been the Reserve Bank’s removal of loan-tovalue ratio regulations for at least the coming year. There will now be no official limit on the proportion of loans banks can make to buyers with less than a 20 per cent deposit, or 30 per cent if they are an investor.
Will this make much difference? Banks have as much knowledge of where house prices will go as anyone else, and they know many people are under-estimating their chances of being laid off.
Until they can measure the downside risk, they will be hesitant to undertake any lending which is slightly risky.
So, for now, customers expecting to be able to snap up a raft of almost-completed houses at 10 per cent deposit from building company liquidators selling off unsold stock to the highest bidder had best not get too optimistic.
Until banks ease lending criteria – probably late this year – the only people likely to be snapping up the coming bargains are well-capitalised, long-term investors with a focus on yield and value.
And many of those people according to my survey results, have already been in contact with real estate agents asking for the inside running on property looking to be sold quickly. But as yet, they’ve not been able to find many such bargains at all.
Tony Alexander is an independent economist and speaker.