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Barfoot sales increase in November, average price falls (updated)
December 4th, 2008Auckland real estate agents Barfoot and Thompson reported a slight increase in sales in November from October, as the average sale price dropped. However, buyers remained cautious through the month, using auctions as a means to see where the market was, Managing Director Peter Thompson said. (Updated to include rental figures).
November sales rose to 546 from 503 in October, but were still well down from 881 in November 2007.
Barfoot’s average sale price dropped 3.7% to NZ$500,840 in November from NZ$520,040 in October. In November 2007 the average sale price was NZ$546,364. Thompson said that the average sale price in the year to November 2008 was NZ$514,000.
Although there was an increase in sales, Thompson said that buyers remained cautious and were still holding back, often using auctions as a means to see where the market was and then negotiating prices post-auction.
“Our auction rooms have been full during November, but buyers are very cautious and holding back on committing themselves,” Thompson said, adding that the 150 basis point cut in the OCR would give a boost to the housing market.
“Today’s cash rate cut may be just the confidence booster buyers need to make a move.”
Thompson said that the auction clearance rate during November was about 35% under the hammer and more than 50% by the end of the week following auction day.
“Buyers seem to be waiting to see what price is set in the auction room and are then willing to negotiate post-auction.”
Barfoots said they had signed up 660 new rental listings in November, and that the average weekly rent for properties they monitored had fallen slightly in November to NZ$381 per week from NZ$385 in October.
Tags: Auction, Barfoot and Thompson, Housing, Peter Thompson, Property Prices, Residential property
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December 4th, 2008 at 5:53 pm
Harcourts Chief very confident about 2009 – http://www.youtube.com/watch?v=TFRJyeMARqc&feature=related
Allan Bollard – you deserve a Knighthood!
December 5th, 2008 at 9:14 am
Hmmm.
If you believe the fall in interest rates will create support for the house market now, and will lead to increased prices ….
…. do you believe price will fall again when rates go back up in 12 months?
December 5th, 2008 at 10:55 am
At an average price of over $500,000 I don’t expect the housing market in Auckland to go anywhere but down in the foreseeable future, unless of course it’s real estate agents who are buying all these houses!
December 5th, 2008 at 10:59 am
Against the background of a ‘tsunami of insolvencies’ in NZ (see link), perhaps its more than a little hard to see the housing market thriving:
http://www.nzx.com/news/economy/4783392
In my humble experience people who are worried about losing their jobs/are in the process of losing their jobs/have lost their jobs are not renowned for rushing out and buying houses. Odd that eh?
December 5th, 2008 at 11:37 am
IanC – what’s your justification for interest rates going up again in 12 months?
December 5th, 2008 at 11:58 am
Alex – do you know what they said about rental prices? Their average rental achieved had been softening, interesting to see whether this is still the case – nothing on their website.
December 5th, 2008 at 12:07 pm
AREINZ – I suggest you might want to read this:
http://www.nbr.co.nz/opinion/michael-coote/fix-your-mortgage-soon-reserve-bank-will-resume-normal-service-next-year-and-p
Generally you hear one of 2 outcomes discussed:
1) We are on the verge of the ‘Great Recession’, or the ‘Great Depression part 2′, in which government action does not work and we have a horrible economic contraction lasting years, soaring unemployment etc,
OR
2) (which is along the lines that the above article flows), the government actions around the world (which are highly stimulatory/inflationary) do work, we get a recovery, but get a quick return to the inflationary rises seen in 2007/early 2008, which cause rapid hiking on interest rates.
You pays your money you takes your pick……………(I am more in the camp that government action does not work).
If 2) is correct anyone buying now better factor in being able to cope with rates back in the 8-10% level……….
December 5th, 2008 at 12:55 pm
Andy,
Story updated with rental info
Cheers
Alex
December 5th, 2008 at 2:06 pm
Thanks for the rental info. Alex. Interesting, Auckland rents as recently as Jan 2008 were at an average of $396 according to B+T, now down to $381, a 4% fall.
Who would ever have imagined that an increase in the supply of properties for rent from defeated sellers would have led to a decline in the rental yield?
Strange and mysterious are the workings of the free market…………
December 5th, 2008 at 2:37 pm
The 30% drop in interest rates over the same period will mean returns are better now then they were in January.
December 5th, 2008 at 2:53 pm
Andy, Alex year on year rents are sill rising which is a far better indicator. Rents tend to always soften toward xmas as students move home for the summer.
December 5th, 2008 at 7:17 pm
Hi Everyone
I am waiting for house price drop 30% from the peak last year to buy a family home. Is anyone in my camp?
December 5th, 2008 at 8:24 pm
A lot are waiting the drop to happen emcd. Rational investors will get back to the market once the returns match the capital.
December 5th, 2008 at 11:52 pm
emcd & sam
If you had anything to do with properties in the late 80’s – early 90’s, then you may even want to wait for more than just the return matching capital, there will be plenty of true bargains out there once the recession has been biting a lot longer. Particularly the city and fringe suburbs that have been the first to get really over the top, will be the ones suffering the worst once business failures, unemployment and finance companies like Hanover are dead with very little returned to investors.
I think Bernard Hickey’s forecast of a 30% drop is very conservative as some properties have fallen by that amount already anyway. I may look at buying something when property is at a price level roughly equivalent to 1996-98 plus 30% (roughly the inflation since then). And if they don’t fall to that level, fine, I stay where I am mortgage free and do something else with my money that’s more worthwhile.
December 6th, 2008 at 9:25 am
In 1993 I bought a new house in Queenstown for $325k. In 1998 I was on the move and I had it on the market for $225k, and couldn’t even get a viewing! 15 other houses in my street were in the same situation, and mostly empty. I had to take rent of $100 per week just to keep the place occupied. In 2005 it sold for….$325k. A long, expensive experience of what can happen if demand disappears. Having said that QT is not really representative of general NZ.
December 6th, 2008 at 10:08 am
Hello ctnz
I do understand that the capital gains must be considered while investing on housing stock. Unfortunately the capital gains occurred in the past were largely contributed by household debts and not by the growth in productivity & wealth in the country. The widening gap in real incomes has created “desirable” & “undesirable” locations and distorted house & land valuations. Capital gains occur only at the desirable locations, and properties in such locations do not give any decent rental return. For a cash rich person, inflation erodes his wealth and hence it makes sense for him/her to buy houses in “desirable to live” locations to enjoy long term capital growth and also harvest some loss qualifying tax gains. Only a very small percentage of the NZ population belongs to the “cash rich category”. Hence the rental returns, and long term average interest rates are important factors. It is still not rational to invest in housing because prices still remain high relative to the returns. The days of cheap overseas money are gone for good and bank lending to overvalued house created structural problems in most developed economies. Hence there is little chance for any debt driven growth in house prices in the nest 5 years. The only motivation to invest will be to protect against inflation, which applies only to the very cash rich. Cash rich are generally wiser, and will buy only bargain properties. Trend chasing low equity speculative investors will not return to the market for many years to come.
December 6th, 2008 at 12:19 pm
A lot of wide generalisations there Sam, most of which I disagree with.
The one thing you have right is your earlier statement
“Rational investors will get back to the market once the returns match the capital.”
As interest rates come down, they have as much effect as do drops in prices, maybe even more, as they allow current owners to hold onto their property instead of selling them.
Investors are looking, their problem is getting finance.
“The only motivation to invest will be to protect against inflation, which applies only to the very cash rich. Cash rich are generally wiser, and will buy only bargain properties. ”
You haven’t considered capital security, personal security & lifestyle – not only of the cash rich, but of the average investor looking for safe places to put what money they have left.
I expect to see an increase in investors from India and other places that have recently been subject to new violence and economic turmoil that the local investors would not be used to.
Property is not just for the cash rich
December 6th, 2008 at 12:39 pm
Hi Keith
There are two basic types of house buyers (i) owner occupied & (ii) investors. Only 50% of the houses in NZ are owner occupied. For owner occupied houses, returns are not critical but only affordability. For investors, returns matter more than capital gains because most investors have low equity.
For immigrants from China & India, US & Australia are more attractive than NZ. I dont see much growth in immigration happening in the near future.
Housing investments are no longer 100% safe because the prices are falling in many countries. We should not forget that the housing bubble caused the economic crisis in many countries.
Safety, Liquidity, & Return are three fundamental factors that drive investment. I don’t think housing investment scores well on these three aspects, and prices must fall further to make housing investment more safer, liquid and provide reasonable returns.
cheers
December 6th, 2008 at 2:18 pm
Sam said “For investors, returns matter more than capital gains because most investors have low equity.”
That might be true now.
However the boom from the early 2000’s through to 2007 was driven in large part by the prospect of capital gains.
Have a look at this thread on the somersoft forum (AU property investing forum).
http://www.somersoft.com/forums/showthread.php?s=aae6bea3a7119fc63bb1aeb7cfb3b96d&t=26532&page=13
In particular, have a look at this diagram from that thread
http://www.somersoft.com/forums/attachment.php?attachmentid=3831&d=1221651135
This thread started out looking at how to maximize tax deductions on interest paid. But there are a post or two within the thread that discuss depending on capital gains for profit.
This looks like it was a rational course of action during the early stages of the past boom. Whether it will be over the next couple of years remains to be seen. There may be one or two investors who have followed this type of strategy that may be struggling, even with interest rates dropping, due to their reliance on capital gain.
If they lose their job(s), or have trouble renting the property out, then they will be toast.
December 6th, 2008 at 5:51 pm
In my opinion those so-called investors who are highly indebted aren’t investors, they are speculators. Speculators usually get caught out. That’s because greed is an emotion, a human condition, and therefore it is almost impossible to be rational when speculating.
Only my humble opinion…
December 6th, 2008 at 5:52 pm
http://www.marketoracle.co.uk/Article7633.html
December 6th, 2008 at 7:32 pm
ctnz
what does the indebtedness have to do with whether they are investors or speculators ?
Nothing
As you point out, greed can result in irrational decisions but equally no-one invests in something unless they are going to get something out of it.
Does that make them greedy or do they have a right to expect a reasonable return for the risk they take with the money they have access too (whether cash or borrowed).?
Look at all the mums & dads tied up with Dominion or Strategic or any other finance company. Were they investors or speculators (because their money was ultimately used in the property industry)
Is somone who pays 100% cash for a CBD apartment expecting long term capital gain, (but that may now have halved in market value), an investor or a speculator.
Is that person, who is mortgage free, and therefore more likely to be able to hold onto the property, any less of a speculator or more of an investor than someone who borrows to speculate / invest ?
The sourcing of the funds is almost irrelevant in any investment, it is the risk of loosing the funds that determines if something is an investment or speculation, and as we have seen, those risks can change unexpectedly.
The flowon consequences of a failure can be just as devistating for the prudent investor that looses their life savings in finance company collapses, as it is for speculative property traders.
If you don’t think anyone should have investment properties on the basis that they are speculating that they will make some money from them, then you had better be prepared to pay a whole lot more in taxes, because the governemt will have to own all the rental property and commercial property that is required to house the millions of renters and to provide a place of work for those willing to invest/ speculate in running their own businesses. (ala communism ?)
If on the other hand you see those with cash as OK but those that borrow as greedy, then all you are doing is encouraging the rich to get richer & the rest to get poorer.
(just remember that the rich use their cash assets to borrow even more than the poor & pay even less tax. Does that make them investors or smart speculators ?)
December 6th, 2008 at 7:48 pm
Sam
“Safety, Liquidity, & Return are three fundamental factors that drive investment.”
Anyone investing in property knows (or should know) it is long term, liquidity is not an issue, only servicability is, & that is aided or fulfilled by the return.
Falling prices will do little for liquidity, in a boom market property can be very liquid, in this market it is not. In fact it is probably only liquid in a boom, any other market, flat or falling will see it being very illiquid.
As for safety, even the fabelled 30% drop in NZ property values still leaves you with a physical asset that has some value, unlike shares, finance company investments, businesses etc that can easily leave you with nothing.
December 6th, 2008 at 8:30 pm
Keith. Speaking of relative safety consider the growing scenario where many house prices have dropped more then owners equity. A conservative 10% price drop if you have to sell would more then strip all the equity of someone with a 10% deposit – even a 5% drop (if only) plus selling costs would probably leave the owner with nothing.
You’d have to be real unlucky to lose everything in shares and most Finance Co failures have their roots in the same easy money that has led to the massive overpricing of property in recent years.
December 6th, 2008 at 8:37 pm
If you have to sell !
If you don’t have to sell, there is no effect.
Bear Sterns $180 > $10
Telecom $5 > $2.30
etc
Finance co payouts of 10 -20 cents in the dollar
December 6th, 2008 at 8:48 pm
BTW
10 % is normal negotiating territory for a house transaction – preferably 20%, so the current 7 or 8% drop is still within the normal operating noise.
Some would say that for investment property it is better that the loss is made on the banks money than your own.
There are bargains available from developers being sold up, but most opportunistic vendors(as opposed to those that have to sell) are still holding out for decent prices.
December 6th, 2008 at 9:16 pm
Repaying mortage is still better then paying rents, as long as it’s not to excessive. On long term household income will most likely increase, and repayments decrease. Mortage will eventually be repaid, and one will be mortage free and have a home.
December 6th, 2008 at 9:19 pm
You miss the point Keith. All your examples leave the investor with some money. Many folk are now losing all their equity (plus!) if they have to sell for a bigger loss then equity invested. An investment is usually only considered an investment if tradable.
December 6th, 2008 at 10:38 pm
Hi Keith
Liquidity is important for any asset class including houses. The average length of time a property is owned is about 7 years. The average amount of time taken to sell a property has more than doubled. The usual level of housing market liquidity will be restored only when prices drop.
Risk & reward are positively correlated. Shares involve a higher risk (volatility) as well as higher returns. This is the time to buy shares but not houses yet. House prices must fall further…..
December 7th, 2008 at 1:10 am
Keith,
“The sourcing of the funds is almost irrelevant in any investment, it is the risk of loosing the funds that determines if something is an investment or speculation, and as we have seen, those risks can change unexpectedly.”
Precisely!!!
Scenario 1)
I use my spare money (I already live in a nice mortgage free house) to buy a house and get a commercially acceptable rental return at that time and in a worst case scenario maybe get a return that is not satisfactory, but nonetheless a return. As an example, the return may drop from a say 8.5% (gross) to a 2% (gross) return because times are really tough allround… Nice to know I have some more spare cash to fix things in the house if needed
Scenario 2)
I am in a solid average career, I have a few spare bucks, the real estate agent tells me it is a good time to buy an investment property (hey, everyone is doing it, so ist must be great!) and what do you know, the bank would love to give me 90% finance, ah what the heck, we’ll give you 100% so you can go and buy a flash new car because we really want you to be a happy customer. Life really is a breeze.
Hmmm, along come higher and higher interest rates…
Next you know it, someone invented the credit crunch…
Holy cow, we are in this rather inconvenient recession…
Oh yes, just as you didn’t think it could get worse, bang, my employer went bust today…
Boy, those tenants just left, and the house looks like a wreck! what a pain!
Hmmm, WHAT IF I wouldn’t have to pay that mortgage on that investment property I can’t afford right now?
Almost irrelevant…
December 7th, 2008 at 1:32 am
Keith,
“The flowon consequences of a failure can be just as devistating for the prudent investor that looses their life savings in finance company collapses, as it is for speculative property traders.”
I wouldn’t call those people who invested all their life savings in a (or several of the same type of) finance company, prudent. You do. I don’t work in the property industry. You do. Does that explain it well enough for newcomers to this blog?
I hope so…
December 7th, 2008 at 10:51 am
“As long as you buy and sell in the same market, it doesn’t matter” has always been the mantra of real estate industry. But in reality it only works one way! As long as the seller gets what they paid, or more, that works. But it’s near impossible to get people to sell “at a loss” to buy into “the same market”.
That’s why people hang on to losses ( be it shares, property or any other asset) far longer than is rational. Those who do well out of this dowturn, however deep or shallow it is, will be those who sell into whatever rallies there are.
December 7th, 2008 at 11:06 am
All assets and investments, houses, shares & cash deposits, not only provide a return but also carry a risk. If the risk is under-estimated, then there is a loss or erosion of capital. Timing matters a lot.
Whether this is the good time to buy a house? The answer is NO unless the house is bought for own living after selling an existing property. First home buyers and investors must wait for the market to get normal in terms of number of properties sold and the number of days to sell. The current level of sales is only half of what it used to be. While we cant exactly tell how low house prices will go, we can roughly judge whether the market equilibrium has been reached or not. If the average number of days to sell falls to about 35 days, and if this rate of liquidity prevails continuously for at least 6 months in terms of number of houses sold, then it becomes the “normal” time to buy or sell. We are far from this equilibrium, and hence it is rational to wait until this happens (to buy or sell).
December 7th, 2008 at 4:12 pm
Anyone who wants to put some (play) money where their mouth is can do it here.
http://www.hubdub.com/m24792/Auckland_house_prices_for_December_08_Boom_or_bust
Bit of fun as well.