What Do People Mean When They Talk About “The Property Market”?
The weather in February really hit the property market with historically low sales for the month, in fact the lowest number of sales in a February in over 25 years, and 38% down on last February! Of course the media has had a field day with these statistics, which brings me to:
What do people mean when they talk about “The Property Market”?
When you hear people talk about the real estate market, you need to realise that there are two “property markets.”
1. Property (real estate) sales. Generally speaking, the only people who care about real estate sales are agents. The public doesn’t care.
2. Property (real estate) prices. This is the market that the general public does care about. They care about housing prices going up or down.
There is a lot of confusion surrounding which one of these “property markets” is being talked about when you see headlines in the media. They are not the same.
Clickbait news headlines grab the public’s attention: “The Property Market Predictions Look Grim for 2023” or “The Property Market is Crashing!” They are likely talking about sales volume dropping, and not necessarily prices dropping. So it can really confuse the general public on what exactly is going on.
Anyone waiting to try to “time the property market” is crazy.
“Timing the market” is especially crazy if you are buying and selling your personal residence. We say this phrase often when it comes to buying and selling a personal residence: it all comes out in the wash.
Let’s say you are waiting for prices to drop so you can buy low. Well, you will also sell your current home low, too.
And if you are holding back from buying because mortgage rates are high right now, remember that you can always refinance when the rates do go back down. There is no reason to wait for mortgage rates to go down (particularly as house prices will go up as soon as mortgage rates go down).
Unfortunately, the media have far more influence on the property market than do the actual facts, so here are some real estate facts for you to consider.
Property market (real estate) facts to consider when purchasing
Economic Conditions
Boosted by new factors – migration, tourism, export sector, Chinese economy, rebuilding after floods. The labour market continues to be resilient.
Mortgage Payments
Mortgage arrears in Jan 2023 were up 22% year-on-year to 18,400 – the highest since April 2020. The portion of mortgage debt deemed “non-performing” remains low at 0.3%, up from 0.2% (non-performing is where the borrower is unable to meet their payment obligations)
The non-performing housing loan ratio has generally hovered around 0.2 or 0.3% since 2015, previously it was as high as 1.2%
Mortgage Renewals
Approx 50% of mortgages are projected to move to higher rates this year, with the average Aucklander potentially paying $900 per fortnight more than their current mortgage repayment
New Mortgage Applications
New Mortgage applications were down 25.6% year on year in Feb but rose 3% compared to Jan 2023.
Banks are failing to meet their mortgage sales targets and have recently been discounting 1-2 year fixed rates for limited periods of time.
Interest Rates
Some commentators (eg Tony Alexander) are of the view that fixed borrowing costs have peaked, any decline in mortgage rates from here is likely to be very slow
Migration
Net migration flows have turned on a dime from an annual loss of 16,000 six months ago to a gain of 16,000. The way things are running we may end the year with a net gain of close to 40,000 people. Rental prices have gone up, further assisted by displacement caused by flood damage.
This brings us to rental prices in the property market
The latest Trade Me property data show rents kicked off this year at an all-time high, with the national median weekly rent reaching $595 in January. In Auckland, rental availability (city centre) is down to its lowest in 15 years!
This is a $25 rise or 4% increase when compared with the same month last year.
It follows three stagnant months where the national median weekly rent remained at $580 throughout the last quarter of 2022.
Trade Me property sales director Gavin Lloyd says after a period of rents cooling off, January’s jump will be “unpleasant news for renters around the country.”
Along with the new national record, Auckland ($630), Bay of Plenty ($615), Marlborough ($550), Northland ($580), Taranaki ($580), Waikato ($540), and Wellington ($660) regions had their highest median weekly rents of all-time last month.
Property prices started the year with a record-breaking price drop
The national average asking price fell by 8% year-on-year last month to $878,800.
This is the biggest drop we’ve ever seen and puts the national average back where it was in September 2021.
Looking around the country, the main centers took the biggest hit, with the average asking price down 11% year-on-year in both the Auckland and Wellington regions.
In the Auckland region, the average asking price was $1,116,850 in January, while in Wellington it was $872,400.
Last month there were more properties listed for sale than in any other January on record.
Nationwide supply spiked by 29% when compared with the same month last year, as has happened consistently over the past few months.
Demand, however, went the other way and fell by 5% nationwide last month when compared with January 2022.
In January last year, the national average asking price skyrocketed 25% year-on-year, reaching a then-record of $957,950, so it is a huge change now with prices falling year-on-year for three months in a row…
Where will the property market go from here?
Over the past 2-3 weeks our open homes have been the busiest we have seen in over 6 months: There are definitely plenty of buyers looking in Auckland.
We are unsure what this will mean for the market. What we do know is that once buyers’ sentiments change the market can turn on a dime. When buyers believe that the bottom of the market has been reached we may see a flurry of activity which could well help firm up property prices.
Lisa and Steve Stone
Elite Agents for Ray White