Low sales volumes are likely to be the biggest problem facing the real estate industry this year, and a possible easing in prices that could put agency revenues under further pressure.
The country’s two largest housing markets have had a disastrous start to the important summer selling season with sales numbers well down in Auckland and the Waikato/Bay of Plenty.
Real Estate Institute of NZ figures show that in Auckland the number of homes sold in the fourth quarter of last year was down 12% compared to the same period of 2015 and down 21.3% compared to the fourth quarter of 2014
It shows that there were only 6408 homes sold in Auckland in the last three months of last year, compared with 7285 in the same period of 2015 and 8138 in the same period of 2014.
There was also a substantial decline in the number of homes sold in the Waikato/Bay of Plenty, where 3589 homes were sold in the fourth quarter of last year, down a whopping 20.3% compared to the same quarter of 2015, although sales were still up 11.6% compared to the fourth quarter of 2014.
Sales in the fourth quarter of last year were also down compared to the same period of 2015 in Wellington (-11.4%), Nelson/Marlborough (-14.3%), Central Otago/Lakes (-12.2%) and Canterbury (-6.1%), with falls also recorded in Northland, Hawkes Bay, Taranaki, Otago and Southland.
Manawatu/Whanganui was the only part of the country that went against the trend, with 1136 sales in the fourth quarter of last year, which was up 20.9% compared to a year earlier.
The downturn in sales is significant because a decline in prices is usually preceded by a decline in sales volumes, and the REINZ’s sales figures for December showed a fall in median prices compared to November in Auckland, Waikato/Bay of Plenty, Taranaki, Manawatu/Whanganui, Nelson/Marlborough and Canterbury/Westland.
In Auckland it was the second month in a row that the median price had fallen.
The combination of falling sales volumes and easing prices is particularly significant in Auckland because it is occurring against a background of a rise in the number of homes being listed for sale.
According to Realestate.co.nz the number of Auckland homes that were newly listed for sale on the website in December was up 12.9% compared to year earlier, while the total number of Auckland homes available for sale on the website was up 18.4% compared to a year earlier.
That combination of falling sales volumes, easing prices and rising listing numbers does not augur well for Auckland’s residential property market as it heads into 2017.
While investors and home buyers will be watching developments closely, real estate agencies are likely to be already feeling the effects.
That’s because sales volumes usually have a bigger impact on the industry’s commission revenue than property prices.
And interest.co.nz’s estimate of the real estate industry’s residential commission revenue suggests it may already be feeling the pinch, particularly in Auckland.
The chart below shows how many homes were sold in each region of the country in the fourth quarters of 2014, 2015 and 2016, and matches those figures with interest.co.nz’s estimates of how much commission revenue those sales would have generated for the industry.
It shows that in Auckland, the number of homes sold declined by 21.3% between the fourth quarters of 2014 and 2016 but estimated commission revenue only declined by 5.7% over the same period, from $180.4m in 2014 to $170.1m in 2016.
That’s because the drop in the total number of commissions that would have been received from sales was largely offset by the rise in prices over that two year period, pushing up commissions per sale.
Even so, the fact that sales were down would mean there were fewer commissions to go around, and total commission revenue from the Auckland market is likely to be down slightly or be at best, flat.
So although rising prices have given the appearance of a buoyant residential property market in Auckland over the last couple of years, the financial reality for the real estate industry in the region has probably been more difficult.
And if present trends continue and sales and property prices both continue to ease, then some players could start feeling more serious pain.
|Residential Housing Market Sales & Estimated Industry Commissions|
|Q4 2014 -2016|
|Number of Sales||Estimated Commission|
|Q4 2014||Q4 2015||Q4 2016||Q4 2014||Q4 2015||Q4 2016|
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