Ch-ch-changes — a shift in market sentiment

REINZ statistics show a common theme in 2022 — a market that is consolidating at a new pace. The headwinds gathered in 2021 are making their presence felt; we see sales activity down, prices moderating, while more stock on the market — and thus more choice for able buyers — is easing demand. We explore the shift in market sentiment, and what this means for buyers, vendors and agents.

2020 and 2021 saw extraordinary growth in residential property prices across New Zealand in a competitive market driven by low interest rates and listings, and high demand. We saw this prolonged period of fast-paced activity and significant growth culminate in a national record median price of $925,000 in November 2021.

Over the past months, REINZ data shows a market returning to a more settled pace. Property prices have come off their November 2021 peak in most regions and the headwinds we monitored closely have combined to ease upward pressure on property prices and soften demand, resulting in a drop in sales counts.

Over the last year, we’ve experienced several changes in the market. Rising interest rates, new tax legislation, the reintroduction of LVRs and tighter lending criteria exacerbated by changes to the Credit Contracts and Consumer Finance Act (CCCFA) in December, have added further to affordability pressures and hampered access to finance. At the same time, there is a significant increase in stock levels causing an easing of pressure on the supply and demand side of the market.

Unlike the end of 2021 when stock was scarce, this year has seen more choice for buyers. In a typical buyer’s market where supply outweighs demand, this would enable buyers to set the pace and negotiating terms. However, the current market environment has blocked some buyers from the market — specifically those who are not backed by equity or for whom access to finance is an issue. Despite the easing of price growth, house prices are still higher than they were a year ago.

Agents are telling us that uncertainty continues to linger in the market — a culmination of COVID-19 restrictions and the prospect of further changes to the lending landscape including rising interest rates and corrective changes to the CCCFA expected in June. The continued impact of COVID-19 is still seeing many people choosing to stay home or isolate — further contributing to a decline in buyer presence.

FOMO no longer — FOOP takes over

Not too long ago, the market was fuelled by a fear of missing out (FOMO), however, this has now been usurped by a fear of overpaying (FOOP) among buyers. Our April survey with economist Tony Alexander stated that FOMO is essentially nonexistent, with only 6% of agents reporting FOMO on the part of buyers. As the shift in sentiment sets in, and buyers are less willing, or unable, to pay the prices we saw toward the end of 2021, vendors should consider if their expectations will meet the market.

Our analysis of the current property market is driven by statistics and intelligence from those in the profession, but the New Zealand property market is influenced by what we consume around us — whether it be conversations with friends, families, colleagues, or the media. The property market is run by emotion, and for many Kiwis purchasing property is not just a property choice, but a fundamental life choice.

The reality for vendors

It’s important for sellers to stay close to their real estate professional and have in depth conversations to understand how the market is changing. This will enable them to make informed decisions through their sales process — it may mean tempering their 2022 price growth expectations and how quickly the sale will happen.

The market has changed, but it's important to remember that prices are relative — for the majority this means buying and selling in the same market so while you may get slightly less than your expected sale price, the price of the home you buy will also be affected by the market.

To really understand what all this means in your suburb or town, sellers should look to align themselves with an agent and company who truly understand the current market conditions.

Managing your vendors’ expectations

For those in the real estate profession, conversations change as the market does. Agents support their vendors achieve their desired outcomes in this environment by regularly communicating what is currently happening, the shift in balance between supply and demand, and the challenges buyers are facing. Sometimes this conversation is to temper their expectations and while it might not be what your vendor wants to hear, knowing the market will enable you to maximise their sale opportunity.

It is important to recognise there may be additional pressure on agents newer to the profession and who may not have experienced the pressures of the slower, changing market.

Ours is a supportive profession, with many new skills to learn as the market changes, experienced agents, trainers and the team at REINZ are there to guide those who may need additional support.

In the following article, REINZ Ambassadors provide their advice for navigating this changing market, and how to best manage the expectations of vendors. Part of that is building trust and connections, which we cover in our upcoming virtual training day Prospecting for future business, which takes place Wednesday, 15 June. In the digital arena, Australian keynote speaker Lee Woodward and Founder of the Real Estate for Good Initiative Julia Dyer share strategies for success in a market where agents need to stay visible and relevant. Head to www.reinzeducation.co.nz to learn more.

Jen Baird

REINZ Chief Executive