Slow turnover rate strangles market

House prices might be dropping but there has not been a rush to buy them, especially in a few suburbs that are seeing very low sales activity, writes Susan Edmund.

Buyers are holding back as house prices fall and interest rates rise. But if you’ve put a house on the market lately and struggled to find buyers, spare a thought for those in Cannons Creek, New Windsor and Newmarket.

CoreLogic data comparing sales numbers over the past year to the total number of houses in those areas shows these three suburbs have had the slowest housing markets over the year.

In Cannons Creek, just 1.8% of housing stock had been sold in the past year. In New Windsor and Newmarket, the figure was 2%.

Those areas were followed by Kaiti, in the Gisborne area, with 2.3% and Epsom in Auckland, at 2.4% – tied with Pāuanui.

By contrast, Albany Heights, on Auckland’s North Shore, had turnover of 10.3%.

CoreLogic economist Kelvin Davidson said a turnover rate of about 5% or 6% was normal. He said it was not surprising to see the weakest turnover in Auckland and Wellington, because they were areas that were leading the wider housing market downturn.

He said a fall in sales activity was usually an indicator that prices would also weaken, sometimes with a lag of three or four months.

The Porirua area, including Cannons Creek, has seen prices drop significantly in recent times – its Real Estate Institute median price in October was 13.8% down on September 2022 and 25% down on October 2021.

Prices in central Auckland, including New Windsor and Newmarket, were down 13.1% year-on-year in October.

The Real Estate Institute’s latest data showed the number of sales nationwide was 34.7% lower in October than a year earlier, and 4.3% down on September.

The regions with the greatest annual percentage decrease were Tasman, which decreased 45% annually from 80 to 44, Auckland, which decreased 42.2% annually from 2688 to 1554, Southland, which decreased 40.9% annually from 149 to 88 and Northland, which decreased 39.1% annually from 184 to 112.

Porirua’s sales count was up 42% month-on-month but central Auckland’s was down more than 8%.

Miles Workman, a senior economist at ANZ, said a seasonal uplift in sales should start ‘‘any time now’’.

‘‘But I wouldn’t expect to see a strong increase in seasonally adjusted terms until after mortgage rates have stopped lifting and house prices have stopped falling,’’ Workman said.

‘‘One thing we’ll be on the lookout for over coming months – the coming year for that matter – is any evidence that higher interest rates, and eventually weaker labour demand leads to an increase in forced house sales.

‘‘So far, there’s not much evidence to suggest this is occurring en masse. In fact, new listings in October were on the weaker side for this time of year, suggesting some would-be sellers might be choosing to wait things out.’’

He said it would take more households getting into trouble than the Reserve Bank expected, maybe due to rising unemployment, before the downturn in housing became ‘‘disorderly’’.

‘‘Given current momentum and the risk profile, we could be talking second half of 2023 before the market convincingly finds some kind of floor.

‘‘Thereafter, I think we could be in for a period of relatively stagnant growth in housing activity and prices.

‘‘The housing deficit is greatly – possibly fully – eroded, courtesy of a gangbusters construction industry and closed borders these past couple of years; housing-related policy has hurt investor demand; and given the recent experience, upside interest rate risks are likely to remain a lingering concern for would-be buyers,’’ said Workman.

‘‘It was not surprising to see the weakest turnover in Auckland and Wellington, because they were areas that were leading the wider housing market downturn.’’

Kelvin Davidson

CoreLogic economist

‘‘One thing we’ll be on the lookout for . . . is any evidence that higher interest rates, and eventually weaker labour demand leads to an increase in forced house sales.’’

Miles Workman

Senior economist at ANZ

‘‘We’re saying it will probably take a year for the market to turn around. The Reserve Bank is busily tightening into next year. We need to get past that.’’

Jarrod Kerr

Chief economist at Kiwibank

Jarrod Kerr, chief economist at Kiwibank, said there was still some downside for house prices to come, with weakening activity. The Reserve Bank expects house prices will fall 20% from their late 2021 peak.

‘‘The full force of rapid-fire Reserve Bank rate rises is being felt, and will continue to weigh on the housing market for a while yet.

‘‘The Reserve Bank’s decision last week, with mention of a likely recession, will plague even the most optimistic investors. We’re expecting turnover to remain suppressed into next year. The impact of much higher interest rates, coupled with the threat of even higher interest rates, is the main story.

‘‘We have seen some very tentative signs of improvement, like a lower number of days to sell, but they are still far from normal.

‘‘We expect a trough in house prices at around -15% in coming months, and have a very slow recovery kicking off later next year.

‘‘So we’re saying it will probably take a year for the market to turn around. The Reserve Bank is busily tightening into next year. We need to get past that,’’ Kerr said.

‘‘House price falls would likely be far deeper if it wasn’t for a robust labour market. Broadly speaking, households have jobs, there’s plenty of vacancies, and wages are rising. The unemployment rate remains at a near record low of 3.3% in the September quarter.’’

Davidson said the areas that had the biggest drop in sales could potentially be the areas that would pick up first.

‘‘What would trigger sales to pick up a lot is the market getting cheap or prices looking undervalued or affordable. That triggers people to come back to the market.

‘‘Auckland is down pretty sharply, as is Wellington and Dunedin. Certain suburbs within those markets could pick up first, depending on the exact depth of the price falls.’’

He said the Reserve Bank’s update last week had ‘‘thrown the cat among the pigeons’’ with its negative outlook for the economy.

But he said, even if house prices remained weak throughout next year there would be areas of more activity.

‘‘There will be some suburbs that pick up sooner and the ones that have had the weaker sales and fallen the most would be candidates.’’