Caution still rules in property

BY JENNI MCMANUS

Since Christmas, potential buyers have been dipping their toes back into Auckland's residential property market.

But few are buying and economists warn punters not to get too excited about an apparent improvement in sales.

ASB economist Jane Turner said yesterday that while REINZ national house sales picked up 40 per cent during February, "the trend in house sales remains flat (despite some monthly volatility) with housing demand yet to make a convincing recovery." Big mortgage rate cuts have stopped housing demand falling further but the level of actual house sales is still weak, she says.

Turner also notes the median number of days to sell a house has increased strongly – up to 55 days – suggesting a large mismatch between supply and demand. "The housing market remains oversupplied and we expect this to continue to push house prices over," she says.

Tony Alexander, chief economist at the BNZ, is more bullish.

In his monthly survey of 16,000 readers, released on Tuesday, Alexander says lower interest rates, along with the increasing perceptions of a housing shortage, are behind a "significant improvement" in sentiment.

"What will be interesting is the impact later this year, and through 2010, of an expected surge in net immigration and worsening housing shortage due to the construction collapse."

Right now, the "best" properties – ie, those offered by desperate vendors who have no choice but to grab what they can get – are being snapped up quickly. But other potential purchasers are holding back in the hope that prices will fall further, or are having difficulty persuading their bankers to fund the deal.

Bruce Sheppard, chairman of the Shareholders' Association and a residential property investor, says the sector is still "ugly" and prices are too high. After kicking a few tyres during the past couple of months at coastal properties, apartments and inner city renters, he has decided to abandon his search for more properties until mid-year.

"There is still this nagging sense that it'll be cheaper tomorrow," he says. "And if unemployment bumps up, it will be cheaper tomorrow."

But "serious vendors" – read burnt Blue Chip investors and other similarly desperate sellers – are highly negotiable, Sheppard says. "Things are going to get worse for property, not better. You have to be very pragmatic. It's still a good time to hold cash."

For stricken vendors, he says, market your property aggressively and ask your agent to present all offers. "You have to take what you can get because it won't get better tomorrow. If you need cash, you simply have to meet the market, which means accepting what somebody is prepared to pay."

Sheppard has also noticed that real estate agents are keen to get any form of offer on paper, no matter how low. "They want anything that demonstrates there's a buyer at any price," he says.

Many have left it too late to sell.

Mortgagee sales listings on our two top websites, Trademe.co.nz and realestate.co.nz, have more than doubled in the past year.

Trademe's mortgagee sales listings soared from 32 to 106 – a rise of 213 per cent - between January 2008 and January 2009 while realestate says its numbers jumped 200 per cent from 95 listings to 285.

Listings are across the board. Most mortgagee listings are under $300,000 but about 8 per cent are for properties worth more than $1 million. The trend is expected to continue.

Quotable Value's February statistics, released earlier this week, indicate an 8.9 per cent drop in value across the country during the past year, down further from the 8.3 per cent decline reported for the year to the end of January.

Auckland prices fell 9.4 per cent in the past year, compared with 9 per cent in the year to January. The average sale price increased slightly from $496,618 to $502,193. Auckland is seeing different trends in different strata and localities of the market, says QV spokesman Blue Hancock. "The good news is that not all trends are bad."

QV's Glenda Whitehead says Auckland City valuers are noticing renewed buyer interest in areas such as Ponsonby, Grey Lynn and Mt Albert. Good properties in these areas are getting multiple offers or competitive bids at auction.

"Anecdotal evidence indicates there are many people interested in making property decisions but prior to auction they are thoroughly researching their market and ensuring they have their financial affairs in order. The ability to meet bank equity requirements is a bid talking point and a significant barrier to the sales process," she says.

Waitakere sales activity appears to have increased in the past couple of weeks, especially in the under $450,000 bracket, Realistic vendors are getting results as opposed to dreamers, Whitehead says.

Elsewhere there are good buying opportunities in the traditional investor areas such as Otara, Mangere, Papatoetoe and Manurewa, though homes in the eastern suburbs of Pakuranga, Howick and Dannemora are taking more than six weeks to seek, partly due to a large number of listings.

The average sale price across the country is $383,786 – about the same as January.

According to QV, Wellington properties dropped by 9.3 per cent in the year to February, compared with 8.5 per cent in the year to January. The average sale price for the region was up slightly, from $431, 088 to $433,339.

But Wellington is showing no signs of recovery. Increased buyer interest is not translating into significant sales volume.

"Sales in Wellington typically involve parties who are extremely cautious, says QV's Kerry Buckeridge.

"Guarded bankers and wary buyers are stretching out proceedings, with most contracts inheriting an extensive list of conditions. The property market will need a considerable lift in sales volume before any price recovery can commence. We don't expect to see such a lift any time soon, given domestic job security issues and the international economic situation."

Apart from the difficulties in squeezing loans from cautious bankers, job uncertainty and insecurity is the biggest dampener on the property market. Unemployment, currently at 4.6 per cent, could reach 12 per cent before the recession has played out, says Sheppard.

This is the most pessimistic estimate to date, with most economists around the 8.5 per cent mark, but until potential buyers can be reasonably confident they'll hold onto their jobs, it's unlikely they'll commit to mortgages, even if their banks are prepared to play ball.

The BNZ's Tony Alexander says two key housing fundamentals suggest prices won't fall much further – the supply of new housing has virtually collapsed (dwelling consent numbers are down 50 per cent on last year and at their lowest level in 40 years) and potentially there will be large immigration flows during the next 12 months.

Neither factor will have an immediate effect on the housing market and the BNZ still expects house prices to fall. "But the decline may only amount to another 5 per cent," Alexander says.

He also notes that commentators who've been forecasting house price falls in the region of 40 per cent "appear to have gone back underground".

According to Barfoot & Thompson's figures, median house prices in Auckland last month improved for the first time in five months, rising from $503,000 to $513,000. This is 3.6 per cent higher than February 2008 numbers.

The consents and immigration issues are significant because of housing supply and demand.

"Plummeting consent issuance means reduced supply down the track and at some stage this is going to occupy the minds of many people thinking about housing availability," Alexander says.

Allied to this on the demand side is immigration.

"Our best guess is that the migration turnaround [evidenced in a jump from 3,569 in November to 4,538 in January] will see net inflows of at least 15,000 within a year," Alexander says.

The average gain in the past 10 years has been 10,000 a year but a year ago had dropped to 4,804.

 

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