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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34 Comments
"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.
"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.
"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."
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.
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.
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
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.
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.
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.
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?
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.
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.
"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.
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