Property values holding strong with buyers keen and sellers realistic
At a Bayleys auction on the first day of Alert Level 2, a Remuera home being marketed by agent, Gary Wallace, went under the hammer to a triumphant buyer. The vendor told Bayleys they would have been happy with the price pre-COVID-19 but post-lockdown, they were delighted.
As buyers come back in their numbers to open homes at Level 2, and vendors are looking to test the market, they are happy to re-engage with the idea of auction once more, according to Johnny Sinclair, Bayleys’ National Director, Residential.
And, of course, auction is the most up to date, transparent way of testing what the market will pay.
Independent economist, Tony Alexander has just released a survey completed this week by a small cohort of 25 plus valuers across the country, to gauge where values are sitting in the first few weeks since coming out of Alert Level 4. His research found, of those transactions which have occurred, prices have “barely budged” from pre-Covid levels.
“The general tone was that this was not an environment of forced sales, and you’ll only get big house price declines if people have to sell,” says the senior economist.
A theme coming through in his research was that the heat had gone out of previously very strong markets and sales prices were no longer going for “well in excess of” expectations which had previously been happening.
A general feeling by these valuers was that main price effects may not be seen for up to six months.
Meanwhile, Mr Alexander is predicting that values may drop in the regions before the main cities if there are going to be price adjustments.
“It’s hard to build the case for weakness in the big cities given the way they went in,” says Mr Alexander, who doesn’t believe these markets were overheated.
Price corrections might happen in places like the Hawke’s Bay, Manawatu-Whanganui and parts of the Waikato which have benefited from strong investor activity over the past four years, he says.
How the main city property values are faring so far
An Auckland valuer in the economist’s survey, said the city had been flat for four years while incomes had been rising. “This will act as an insulating blanket for current prices against the effect of rising unemployment and temporarily reduced population growth,” they said.
Wellington remains a market of tightly held properties, said one capital city valuer.
“Listings have been, and remain, in short supply so there’s a backlog of frustrated buyers and their interest has remained firm during the lockdown,“ they added.
At the same time a survey respondent predicted that buyers might be more selective on a national basis.
“Good quality homes are still in high demand, but for those that are a little unusual or have existing issues and had experienced difficulty in the market prior to COVID-19, it’s expected there may be additional buyer resistance to such properties.”
Some first home buyers feel like they’re better off
On the plus side, first home buyers with job stability were feeling that they had benefited from COVID-19, Mr Alexander’s poll found. One buyer had told their valuer it was cheaper to buy now, and that their mortgage repayments would be less than when they rent.
“We’ve actually saved heaps more into our deposit these last few weeks, the bank has pre-approved us more than we thought we could borrow, and we’re looking at places we actually might want to live in now,” the buyer told the valuer.
Bayleys’ Johnny Sinclair, says buyers’ ability to service their mortgage has improved in the low interest economic climate plus the loan-to-value ratio (LVR) restrictions being lifted have also helped, he adds.
What he is seeing around the country are buyers who are very motivated and vendors who are meeting sellers in the middle.
“Vendors are being very realistic and buyers have got the ability to access money to put offers in which is causing demand and holding prices up,” he says.
“It’s all around job security, if people are confident and have a job, there is a big appetite for people to get into the marketplace,” he adds.
Open homes activity a good sign of pent-up demand
Head of research at CoreLogic, Nick Goodall, was heartened by the amount of open home activity in the first weekend of Alert Level 2. It showed that the pent-up demand held off during lockdown is still there and this will drive strong growth, he says.
A key point to make about the current market is that there are unlikely to be many vendors forced to sell because of the support being provided by the Government, adds Mr Goodall.
“People may want to sell and raise funds but they will be willing to wait a bit longer to get the right price,” says Mr Goodall. They’re not going to sell at a 20% discount.
“We can’t underestimate the importance of banks,” adds the CoreLogic head of research. “If the banks don’t lend, you can’t transact.”
CoreLogic monitors pre-mortgage lending decisions from the banks and last week saw these lift by 15%, which is a good sign.
Looking at the Australian market, where CoreLogic has a big base, and where the country’s lockdown has been more similar to our Alert Level 3, at times Level 2, they have seen prices flatten in April and a minor reduction in capital cities.
“It’s not like things just fell off a cliff,” says Mr Goodall.
The “fork in the road” for New Zealand will be in five months’ time when the mortgage deferral is over for those who took this option in March, he says.
But spring will have more certainty, says the CoreLogic head of research.