Housing market overhang at a 10-year high

Property / analysis

Most of the housing stock currently for sale is like retailers' stale old stock that needs to be thrown out in the end of season sale

17th Sep 24, 10:34am by Greg Ninness

The housing market ended winter on a fairly flat note, but is carrying a great weight on its back as it trudges into spring.

According to the Real Estate Institute of NZ, 5685 residential properties were sold in August, which wasn't great, but it wasn't terrible either.

That was down from 5992 in July (-5.1%), but up from 5509 (+3.2%) in August last year.

Last month's sales were also the highest they have been for the month of August since 2021, but remain below pre-Covid levels when August sales were generally above 6000 for the month.

So last month's sales were not too bad but nothing special.

Listing numbers suggest vendors were probably a bit more optimistic than buyers in August.

Property website Realestate.co.nz received 8048 new residential listings in August, barely changed from 8080 in July, but up from 7444 (+8.1%) in August last year.

So sales were up modestly compared to a year ago while new listings rose at a more robust pace.

Which brings us to the total amount of stock on the market.

At the end of August, Realestate.co.nz had a total of 29,579 residential properties available for sale on its website, up 28.1% compared to August last year.

High stock levels are not a problem if they are matched by a high level of sales, but that is not the case the moment.

The important figure with stock if the overhang, which is the amount of stock available for sale at the end of each month, less the number of properties sold the following month.

This is a proxy for dead stock - the properties that have run their marketing campaigns, held their open homes, gone up for auction or whatever and everyone who may be interested in that type of property has seen it.

But no one has bought it.

It's the equivalent of retailers' unsold stock at the end of a season which they need to discount and chuck out in a sale.

And at the end of August there were almost 25,000 of these unsold properties languishing on the market.

That was more than three times as many as the fresh, new listings that came onto the market in August, and more than four times as many as the the properties that were sold in August.

The overhang in August was up 41.4% compared to August last year, and was at a 10 year high for the month of August.

That is a lot of dead weight for the market to be carrying as it heads into spring.

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63 Comments

by Uncle Bulgaria | 17th Sep 24, 10:39am 1726526354

Saw two houses in Karori that recently sold for HALF of their 2021 valuations on Homes.

by mark_a | 17th Sep 24, 10:42am 1726526527

Probably HALF of the 2024 'valuation' on Homes as well.....

by IT GUY | 17th Sep 24, 11:10am 1726528209

I have it on good advice that in Riverhead houses sell before being listed.

London Paris New York Riverhead

by dumbthoughts | 17th Sep 24, 11:17am 1726528672

I keep reading about 'Riverhead'. I thought it was that Irish tap dancing show but obviously not. As a parochial mainlander, what and where exactly is this Zion of New Zealand real estate?

by starrider | 17th Sep 24, 11:28am 1726529321

Normally, you can find riverhead at the bottom of the rainbow.

by interesting1234 | 17th Sep 24, 12:57pm 1726534631

Chuck Norris lives in Riverhead

by starrider | 17th Sep 24, 1:27pm 1726536425

Aquaman and The Deep too

by wingman | 17th Sep 24, 11:46am 1726530363

Yep, Riverhead lifestyle blocks up 143% in the last 5 years.

People told me never to buy properties in West Harbour because nothing would ever happen there, now the same thing's happening again.

They reckon history repeats itself all the time in the markets.

by Chairman Moa | 17th Sep 24, 11:54am 1726530895

Riverhead is just like Huntly..

by wingman | 17th Sep 24, 11:59am 1726531143

Are 3 huge companies spending billions in Huntly?

by Chairman Moa | 17th Sep 24, 3:13pm 1726542839

yep - Min of social development is spending blliions in Huntly, same as Police and Correction Department. More than Riverhead, I say..

by wingman | 17th Sep 24, 4:27pm 1726547229

If you check out the Huntly crime rate, you'll know why police and corrections are setting up there.

by Chairman Moa | 17th Sep 24, 5:13pm 1726549997

I am lost for words..

by 1harlow1 | 17th Sep 24, 6:05pm 1726553100

Something which never seems to happen to wingman.

by Chairman Moa | 18th Sep 24, 11:03am 1726614201

I bet wingman is a really really fun person to have at a party!

by wingman | 18th Sep 24, 9:59am 1726610352

Jails and police stations aren't exactly tourist and shopping destinations.

by Chairman Moa | 18th Sep 24, 11:04am 1726614270

been to Melbourne Gaol?

by rastus1 | 17th Sep 24, 11:17am 1726528655

Yeah, have involvement in an estate sale there...its grim.

by starrider | 17th Sep 24, 11:48am 1726530524

For example - friends of ours were caught up in FOMO. Purchased in NOV 2021. Absolute peak and paid $1.4 million. They would be lucky to get $1million if they sold today. They are trapped for the next 5 years, at least, prior to getting all their equity back.

by CN - new | 17th Sep 24, 12:18pm 1726532300

"friends of ours were caught up in FOMO. Purchased in NOV 2021. Absolute peak and paid $1.4 million. They would be lucky to get $1million if they sold today. They are trapped for the next 5 years, at least, prior to getting all their equity back."

Assuming that they can continue to meet debt repayments and hold on, here is the potential financial cost of that one single choice to buy, rather than coose to rent on their financial future. Their entire future financial trajectory has changed significantly.

For those that are unable to see the mathematics between the Peaker and the Buyer Today (BT) at the median house price.

For owner occupier buyers: CAVEAT EMPTOR. Beware of those with their vested financial self interests.

1) Peaker

The median house price at the peak for Auckland was $1,300,000

With an 80% LVR, this is a mortgage of $1,040,000

The 20% equity is $260,000

2) Buyer Today ("BT") - Aug 2024

In 2021, the buyer who chose to wait and deposited the same $260,000 equity into a bank deposit earning interest. Also BT would rent an equivalent house and have still saved money due to the rental being below the monthly P&I mortgage payments of Peaker - in 3 years the savings would have been about $20,000 annually. So a Buyer Today would have an amount of $340,233 to use as a deposit.

The current median house price for Auckland is around $950,000

Equity deposit of $340,233

The mortgage at this purchase price would be $609,767 (an LVR of 64%)

The Peaker has a mortgage which is higher by $430,233 (mortgage of $1,040,000 for Peaker vs $609,767 for BT). BT's mortgage is 41% lower than Peaker's mortgage.

Assuming BT, pays the same exact dollar amount each year that Peaker pays for their mortgage, as a result of that additional borrowing, Peaker is paying $1,232,229 more over the 30 years than BT (This is due to higher borrowing amount of $430,233, and total interest on this of $801,996 over 30 years). BT is mortgage free by the year 2037, whilst Peaker continues to pay their mortgage until 2051 (14 years later) - so after the year 2037, BT can save all that money that Peaker continues to pay on the P&I mortgage.

Assuming same incomes, and same living costs (food, travel, etc except mortgage) , BT can save the total $1,232,229 in payments that Peaker is paying. If BT invests the annual P&I payments that Peaker continues to pay after the year 2037 at 4.0% p.a, then in 2051 this amount will grow to $1,401,500.

Remember that at the end of 30 years, the house price will be EXACTLY THE SAME for Peaker and BT.

BT will have more money available for retirement than Peaker. Conversely, Peaker will have less money than BT at retirement.

That single decision to buy in November 2021 would have cost $1,232,229 extra to buy the exact same house for Peaker compared to a Buyer Today.

People are free to choose to buy, however they are not free to choose the consequences of their choice.

by nnz | 17th Sep 24, 12:57pm 1726534639

That analysis is just cruel. It's like saying if I put all my pocket money into Apple stocks in 1997 and Bitcoin in 2010 I could have retired nearly a decade ago.

History always creates a lot of losers. But nobody goes into life trying to lose...

by CN - new | 17th Sep 24, 1:18pm 1726535887

"It's like saying if I put all my pocket money into Apple stocks in 1997 and Bitcoin in 2010 I could have retired nearly a decade ago"

Not similar at all.

The above analysis illustrates the financial impact of buying assets in an asset price bubble and getting caught out in fear of missing out (FOMO) as there is a belief of house prices only going up.

Warnings were given by commenters on interest.co.nz of elevated house price risks.

Most people chose to ignore the warnings or were completely unaware of the elevated house price risks. That is what happens in house price bubbles. Most people in NZ believed that house prices could not fall by much as they had not personally experienced it.

FYI, here are examples of owner occupier collateral damage from falling house prices elsewhere around the world:

1) https://www.investorschronicle.co.uk/2012/09/20/your-money/property/ove…

2) https://youtu.be/iKPG_l1P7lk

3) https://youtu.be/ugBKnP2FKDM

4) https://youtu.be/fiCXsu_4BoA

"But nobody goes into life trying to lose..."

You're correct. But people get blindsided by what they don't know or forget. People are blind to their blindness.

by nnz | 17th Sep 24, 1:25pm 1726536335

Stocks and Bitcoin are also bubbles, they just haven't popped. You win if you're the first one to get off the train before it crashes.

There's been warnings the property market will burst constantly for the last 40 years. My own father (an economist) warned me strongly to hold off buying our first home in 2008, even though we were ready to, because he sensed the GFC would trim 50% off prices and return them into the low 300s. By late 2009 I realised not all advice is good advice and we bought for more than 2008 prices. I don't regret that.

by Let me be Frank | 17th Sep 24, 2:03pm 1726538616

Your father probably didnt anticipate the willingness of the worlds central banks to crash interest rates to enable increased debt....an example of recency bias, previously central banks (and financial markets) would have increased the cost of credit in such a risky environment.

Will that trick work again?...and if so, for how long?

by CN - new | 18th Sep 24, 2:01am 1726581706

"There's been warnings the property market will burst constantly for the last 40 years"

Forty years would be since 1984. House prices were much more reasonably priced for most of that time. In the late 1980's, a relative was working at a main bank and the maximum mortgage amount was a debt to income of 2-3 times.

This was before residential dwellings became a financialised asset which were purchased on 100% LVR (using existing unleveraged equity of the home) interest only mortgages at record low interest rates by property buying syndicates who were borrowing on debt to income ratios of over 7 times.

The banks enabled borrowers to borrow larger amounts by extending the terms on mortgages from 20 years to 30 years, and on interest only terms. Had the borrowing terms remain unchanged at 20 years, the borrowing amounts would have been a constraint on the continued upward movement in house prices.

House prices got to the level where purchasing residential dwellings for investment by non owner occupiers was a negative carry trade on an interest only basis from day one, and the primary purpose of the buyer was leveraged untaxed capital gains.

by Thats All Folks | 17th Sep 24, 1:31pm 1726536673

It also shows the stupidity of this market.

It’s a casino devoid of fundamentals, this shouldn’t ever allowed to occur again to this extent.

Many will be burned and possibly ruined, the market requires this for a long overdue mental shift to occur.

by funkymonk | 18th Sep 24, 11:09am 1726614576

TLDR: Hindsight is 2020. Bubbles are only obvious in retrospect and even then investing at the height of a bubble may not even be a calamitous decision in the long term. I invested a reasonably large portion of my net worth in Bitcoin at the height of the so called bubble in late 2017 and subsequently lost (on paper) a small fortune over the coming year. I didn't sell and continued to add. One look at the chart today and that investment at the height of the 2017 bubble looks like a stroke of genius.

by CN - new | 18th Sep 24, 4:23pm 1726633388

Saved by the bank from being a Peaker. He can be a "Buyer Today".

This guy might not have realised it then, but being rejected from the bank was actually a blessing in disguise. Being rejected was better than getting approved to overpay for a house.

https://www.newshub.co.nz/home/money/2021/11/first-home-buyer-not-very-…

by CN - new | 17th Sep 24, 12:36pm 1726533389

A friend got caught up in two house price bubbles. Bought a place in 2007 in a country in Europe where they were living at the time which experienced house price drops after they purchased at the peak. Waited until 2016 to sell the property and recover their deposit.

Relocated to Auckland in 2015. Then bought a property in Auckland in 2017 using the deposit from the property proceeds from Europe. Experienced the increase in house prices to Oct 2021. Then sold to upgrade to bigger house in Auckland. House price is now down 18% on their purchase price, so assuming an 80% LVR mortgage, they have lost 90% of their equity. The friend is aged in their mid fifties, and may now need to keep working well past 65 as a result of the impact on their financial future and retirement.

Costly mistake to make at aged mid fifties.

And one other final point to note is that the breadwinner hates their job.

by interesting1234 | 17th Sep 24, 12:59pm 1726534786

Waited until 2016 to sell the property and recover their deposit.

Accounting for inflation, then they didn't get their deposit back if they only pulled out the same value as the deposit years prior. Makes it even worse. Imagine if they cashed in 2021 then left Auckland or downsized and banked the profit for TD to live off on the side of their work.

by Happy_Medium | 17th Sep 24, 11:38am 1726529935

This Karori home has gone on/off the market a few times the past couple years. Finally sold in 2023 for $1million, now back in the market for an optimistic $995k.

https://homes.co.nz/address/wellington/karori/107-karori-road/4ErBM

by HouseMouse | 17th Sep 24, 12:24pm 1726532685

The Wellington housing market is screwed, much more so than Auckland. Much less population growth pressures, and we all know about the public sector redundancies. Significantly increasing rates won’t help, either.

While I think the bottom has nearly been reached in Auckland, I think the HPI could easily drop another 5-7% in Wellington.

by starrider | 17th Sep 24, 1:34pm 1726536866

Welly is screwed because the fun police have had a stranglehold on council for 15 years. Kicked the rugby 7's out - because a couple of people got arrested each time (ignoring the millions of dollars it injected into Welly and the free overseas advertising).

The Wellington council is great at building state of the art expensive buildings and the World of Wearable Arts thing, not such a great track record when it comes to roading, sewer infrastructure and water infrastructure.

Wellington rate payers are likely looking at increases of 20% per year for the foreseeable future (unless the central govt comes to the rescue).

by wingman | 17th Sep 24, 1:57pm 1726538242

You guys voted for your dopey Mayor.

She won lotto, got a drinking problem, makes $190k a year, and she's selling her car to make ends meet. And she's in charge of Wellington City..OMG!!!...this country.

by ChrisOfNoFame | 17th Sep 24, 4:27pm 1726547277

I heard she's contemplating a move to Riverhead ...

by wingman | 17th Sep 24, 4:53pm 1726548824

If she's contemplating moving to a Riverhead lifestyle block, she'll need to win lotto again.

Ist Division.

by starrider | 18th Sep 24, 1:05pm 1726621510

And she still has a mortgage!! She won $1.4 million in 2002.

Housing that cost $1,400,000.00 in 2002 Q4 would cost... $6,063,577.32 in 2024.

General (CPI) that cash $1,400,000.00 in 2002 Q4 would be... $2,389,364.91 in 2024.

The amount she won in 2002 should have set her up for life.

Investing $1million of her winnings in the NZX50 for 20 years would have resulted in a return of $3,869,684.46.

Yet she was voted to be the mayor of wellington, during a financial and budget crisis. I shudder to think of how financially inept the other candidates were.

by mark_a | 17th Sep 24, 5:03pm 1726549419

She’s already moved there - going to commute to Wgtn Mon - Fri on the ratepayers dime!

by mark_a | 17th Sep 24, 5:04pm 1726549485

Risk of another earthquake a major dampener on investment as well…….

by HouseMouse | 17th Sep 24, 12:26pm 1726532800

On the surface that could be a good price, a very large site with lots of development potential, assuming no flooding or other hazards

by nnz | 17th Sep 24, 1:02pm 1726534961

That's a very prominent house in Marsden Village, a somewhat nose-up community. I suspect if you tried to demolish it there may have been some resistance... It's possible the current owners had similar thoughts.

It's also on the side of a hill. Wellington has plenty of large sections on hills.

by HouseMouse | 17th Sep 24, 1:54pm 1726538041

I assume high density zoning though

by Clefton Twain | 17th Sep 24, 3:44pm 1726544649

It's not a bad looking house, would have gone for a look but a bit small for our next move. Brick construction puts a few people off and busy road I guess.

by ChrisOfNoFame | 17th Sep 24, 4:25pm 1726547148

That's lovely charming gem of a place. Quite unique. I suspect they'll get very close to what they want.

(I remember cycling past it as a nipper.)

by dumbthoughts | 17th Sep 24, 10:49am 1726526985

Got my eye on a place just like this at the moment. It's like one of those turds that you have to keep wiping ... it just never seems to go away for the vendor.

I'd buy it at the right price (roughly $100k under what they are asking) but will be interesting to see their willingness to meet the market.

by Baywatch | 17th Sep 24, 10:54am 1726527266

I hope you meant flushing!!!?

by dumbthoughts | 17th Sep 24, 10:58am 1726527527

I meant exactly what I said.

by spacecadet | 17th Sep 24, 11:37am 1726529865

Bahahahahha

by Chairman Moa | 17th Sep 24, 10:57am 1726527447

And turn the light off when you are the last one to leave!

by Baywatch | 17th Sep 24, 11:08am 1726528093

and see a Doctor urgently..

by Chairman Moa | 17th Sep 24, 11:20am 1726528845

Dr Hu?

by rastus1 | 17th Sep 24, 11:20am 1726528816

Hang in there. I sold heavily discounted from cv several mounts ago in order not to be an overhang non sale. I was happy with price as considered the cv bonkers. Patience.

by Zachary Smith | 17th Sep 24, 11:29am 1726529368

Heavily discounted from CV doesn't mean a lot. Would need to know the ratio of previous CV and sale price. Has the property always sold below CV historically or near to it or above it? Did you sell the property for much more than you bought it for? Did that increase reflect the general price inflation of houses in your area?

by rastus1 | 17th Sep 24, 12:06pm 1726531566

Sold well above what paid because I owned it for 20+ years. Had a few things about it which cv would not pick up on. Difficult to answer your last query however a few in the street, one similar specs are still on market now. They are slowly getting dropped but not moving.

I had one offer after a month, open homes were starting to wane. Was a cash offer and agent pushed them up. TBH I would have still considered selling at another $50k less as I considered the market was going toast.

I still consider we have a lot more down side to come. So I wait to buy back in.

by dumbthoughts | 17th Sep 24, 12:01pm 1726531318

Yeah we are fine being patient on this one ... no urgency to move, but we do like the property. The problem at the moment is around asking price we wouldn't have to spend much more again (I'm talking 5% more) to get a significantly better property again. $75-100k under asking and it would be a solid buy and a meaningful upgrade.

by rastus1 | 17th Sep 24, 12:10pm 1726531852

If the home I wanted came up at right price and $ I will buy regardless - but only because what I want seldom comes up. Bog standard suburban house/location is not what I looking for. So don't let me put you off :).

by JohnfromtheTron | 17th Sep 24, 12:11pm 1726531893

2 toilets?

by CN - new | 17th Sep 24, 12:44pm 1726533887

"It's the equivalent of retailers' unsold stock at the end of a season which they need to discount and chuck out in a sale."

Yes on a macro level.

However on a micro level, the residential dwelling respresents the largest asset that most households own and the main source of wealth for retirement. Only those under time constraints will lower their acceptable price. Some under time constraints (e.g mortgagee sales) may need to accept the only offer that they get.

by K.W. | 17th Sep 24, 2:54pm 1726541681

And most of them are those crappy 2 bedroom shoebox townhouses that are unfit for long term occupation. Du Val won't be the last developer to go bust. Fat lady is just warming up.

by interesting1234 | 17th Sep 24, 9:53pm 1726566837

Saucy

by DitchSkipper | 17th Sep 24, 3:53pm 1726545190

"Tis but a scratch..."

by MikeM | 17th Sep 24, 5:38pm 1726551498

Does this mean we could be in for faster, bigger OCR cuts? We know how much we rely on our housing market to make us feel happy and spendy.

by wingman | 19th Sep 24, 5:29pm 1726723794

Probably.

Kiwis like to own their own houses, it's a national trait. Owning your own home and paying off the mortgage is a very good bet and compulsory savings.