Commentary

The factors at work behind the plummeting house sales

August 16 2017  |  3 min read


Data recently released from REINZ show that throughout New Zealand in the three months to July the number of dwellings sold was down by 22% from a year ago. In Auckland, sales are down 30%, Waikato 23%, Bay of Plenty 28%, Wellington 12%, Canterbury 11% and Otago and Southland each down near 20%. So the falls are well spread and we can attribute the lesser fall in Wellington to the fact our capital city was a distinct laggard in joining in on the nationwide rise in prices and turnover.

What factors lies behind the fall in sales? One is the loan to value restrictions which have kept quite a few investors out of the market. Lending to investors has halved over the past year. Other buyers will also have been affected by the LVR rules though probably to a lesser extent. First home buyers account for most of the low deposit lending undertaken by banks and in fact 25% of loans to first home buyers involve a deposit of less than 20%.

Are Chinese buyers still in the market?

Another factor suppressing turnover will be the increasing difficulty Chinese buyers have getting funds out of their country. The Chinese government has been cracking down on both corruption and outward capital flows and this is often cited as one of the reasons for their decreasing buying across the Tasman.

A more recent factor helping to account for reduced sales is tightening bank lending standards over and above LVR rules. Banks are finding it difficult in a low interest rates environment to fund New Zealand lending with New Zealand deposits, because term deposit rates are unattractive to many savers. So to help ration credit, rules are being tightened up for most forms of lending and this situation is likely to persist.

A key reason for weakening sales is the simple fact that in Auckland at least prices have reached levels which lock many buyers out. A new equilibrium has for now been established with price rises stalling as many buyers have dropped out.

The decline in property availability

But there is another reason for the decline in sales which often seems to get overlooked. Fewer properties are being placed on the market. This following table shows the total stock of listings at the end of July since 2007. The latest total of 24,518 is the second lowest in the past 11 years. The fact that this number is ahead of last July does however tell us that demand factors are perhaps a dominant element behind weakening sales this past year while earlier years simply reflect stock on offer being soaked up.

2007 44,845
2008 54,159
2009 48,347
2010 55,402
2011 48,288
2012 44,729
2013 38,265
2014 42,344
2015 31,378
2016 22,644
2017 24,518


So will sales keep falling? Yes. Buyers are backing off, lending rules are tightening. Annual nationwide turnover peaked at 95,000 in May last year and now sits at 80,000. Previous lows were 55,000 in 2011 and 54,000 in 2009. We expect turnover to continue to fall over the coming year to reach close to 65,000. The risk is that it keeps falling in the following year though a decline to 55,000 would be surprising given the good state of the economy and labour market.

For real estate agents this is not good news and some will be looking for alternative employment in the coming couple of years. If they can swing a hammer, then plentiful jobs abound in the construction sector.


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