Is sale at auction a good call right now?
Dramatic drop in properties selling under hammer since last year
Inflation, rising interest rates, and stricter access to finance have seen a dramatic drop in properties selling under the hammer, a new report shows.
The Real Estate Institute of New Zealand (Reinz) said more contracts were subject to sale or finance and buyers were becoming increasingly confident in negotiating property prices.
A Bay of Plenty auctioneer said the role of the auction had changed but the falling numbers were just a “blip on the radar” and more sales would soon start to happen.
New Reinz figures revealed 16 properties sold by auction in the Bay of Plenty last month, representing 4.9 per cent of overall sales.
That compared with 157 properties (34.7 per cent) in July 2021.
It was the lowest number of sales by auction since April 2020, or January 2010 if months affected by Covid lockdowns were excluded.
In Rotorua, sales at auction fell slightly to just three, representing 5 per cent of the 65 overall sales in July. In July 2021, five sales, 6 per cent, were at auction.
Only 11 homes sold at auction in Tauranga last month, representing 6 per cent of overall sales, compared with 129 (49 per cent) in July 2021. Last month 180 homes sold.
The region’s falling number of auction sales followed a national trend, with 458 properties sold under the hammer in July, representing 9.8 per cent of overall sales.
Reinz chief executive Jen Baird said inflation, interest rates, and access to finance meant buyers were showing caution and fewer were cash buyers.
“We are seeing more contracts subject to sale or subject to finance, and buyers are increasingly confident entering negotiations.
“This shift has seen the number of vendors opting to go to auction and the number of buyers attending auctions decline.”
However, Baird said selling at auction was still an effective marketing method. “Auctions are unconditional, which means contracts are exchanged on the fall of the hammer making for a quicker, more certain sale.”
Reinz regional director Neville
Falconer said attendance at open homes had varied due to school holidays and bad weather.
“According to local agents, properties at the upper end of the market had the best attendance.”
But Falconer said that in Rotorua there was a rise in contracts subject to sale as well as conditional contracts falling through.
“Vendors understand current market dynamics and are adjusting their price expectations accordingly. Pre-approvals are still a significant barrier for buyers, particularly
as sickness and staff shortages slow the application and approval process further.”
Falconer said properties were also taking longer to sell, with the median days to sell climbing from 31 in July last year to 57 last month.
Tauranga-based Bayleys and Eves auctioneer Grant Child, who has called more than 10,000 auctions in his career, said the atmosphere in the auction room was definitely a lot quieter. “In the previous market, we were seeing multiple bidders on one property.
“Now the majority of properties have one bidder. The atmosphere and the attendance have declined.”
Child said many people were not in a position to buy until they sold their property first. “There are obstacles in the way, being able to get themselves into a cash position to be able to bid at auction.”
It meant the role of the auction had now changed, he said.
“Previously, it was about obtaining the premium price for the vendor and giving people equal opportunity to bid. Now, the calling of an auction gives cash unconditional buyers the first opportunity to work with the vendors.
“It gives them a 15-minute head start over conditional buyers.”
Child said more sales would soon start to happen under the hammer. “The market has slowed. It had to, it was out of control.”
But more people were starting to list their properties for sale at auction already, he said.
“People have got the winter blues. There are a lot of vendors waiting for spring.”
Rotorua Professionals Mcdowell Real Estate auctioneer Steve Lovegrove said some salespeople were unsure whether going to auction was the right choice for the vendor in the current market.
Lovegrove said auctions had not been the “flavour of the month”, with more bridges to cross for buyers in order to secure finance first.
“But that is soon to change.” Properties have been taking longer to sell and an auction draws a line in the sand for the sale.
“It is ‘decision day’ for both parties. It is a meeting point where both buyers and vendors can meet to discuss the price.”
Lovegrove said for an auction to happen buyers needed to be willing to buy and vendors needed to be willing to accept where the market was at.
“Vendors are starting to understand price levels six months ago are not there now and if they want to make a move it is about meeting the market.
“There is no better way to see what the market looks like than if you have got buyers in the room putting their hands up.”
Heath Young, the managing director of the Realty Group Ltd, which operates Eves and Bayleys, said the property market had performed “okay” given all of the market factors impacting all at once.
Young said the number of residential sales between April and July was at “long-term lows”.
“This is a byproduct of the market needing to rerate in terms of pricing, interest rate rises and availability of credit.
“Increasingly we are seeing an uplift in buyer activity through the early parts of August that is boding well for typical spring market activity.”
Ray White Rotorua business owner and principal Jacqueline O’sullivan said fewer people at open homes and more contracts being subject to sale had detracted many salespeople from choosing the “very open forum” of an auction where a cash sale was required.
“If you have no cash interest it is not a very nice feeling being on show, so to speak, with no interest on the day.”
O’sullivan said there had been an increase in contracts subject to sale and conditional contracts falling through.
“There have been a few where the other property would not sell after several extensions and in the end people just stay where they are if there are no other driving forces like having to move on due to job transfers etc.”
O’sullivan said there were fewer sales and properties were taking longer to sell with some “cheeky” bargain hunters still out there.
“But I feel the first-home buyers and investors are trickling back in.”
O’sullivan said until the market settled, more properties would list for sale with a price for the time being.