1. Which way is the market going?

By VICKI HOLDER, editor Weekend Herald Real Estate

While the media tell us it's been a tough year for the housing market, real estate agents say the downturn has brought many positives.

Carey Smith, chief executive of Ray White, says listings for September were his company's best ever.


Sue Stanaway, Bayleys residential manager, also says she has had her best year. She even reports an upward trend at the top end of the market.

Mark Thompson, director of Barfoot & Thompson, says the peculiar strength of this downturn has been the sales in the over $1m bracket. "It's become an absolutely hot market," he says.

Thompson says it wasn't a stunningly bad year. "It has been a sustained period of weak conditions. The issue has been one of volume, which is not good for agents. For the public, prices have held very well, given the negative conditions."

The reason, he says, is that most people don't buy for a financial investment, but for emotional reasons. If they see a house similar to theirs down the road sell for a low price, they'll sit tight until they think they can get their price.

Real estate agents are confident things are getting better. Despite the fact that sales volumes have dropped, agents and analysts alike assure the future looks encouraging.

Erich Oettli, Auckland president of the Real Estate Institute, says though the market has been "straight-lining" for six months, there are now signs that it is "moving along."

Whereas the percentage of homes auctioned by Ray White that sold under the hammer dropped to between 40 and 50 per cent during winter, it picked up to around 60 to 70 per cent in September.

Mark Thompson says his company's sales volumes in the greater Auckland area have risen from between 120-140 a week during the winter to around 160-180 sales a week at the moment.

Brian Stafford Bush, registered valuer and property consultant for the valuer Sheldons, says although statistics indicate residential house-buying is flat and gloomy, he has noticed increased activity in the past few weeks.

Search agents gathering details on properties from the land information office have reported a huge increase in activity, which indicates a lot more property transactions are about to happen.

To gain a clearer picture of where we're headed, we look at the factors that influence the market.

A cycle of change

Traditionally, the real estate market is influenced by immigration, interest rates and the state of the New Zealand economy. We have recently been faced with rising fuel prices, a falling dollar and a depressed retail sector.

Graham Crews, senior lecturer in real estate at Massey University, contrasts today with Auckland's boom time in the mid 1990s.

"Back then, the New Zealand economy looked rosy. People had a feeling of certainty. If you speculated in real estate, you had an expectation of capital gain. You also had an expectation of population growth, both externally and internally, of low interest rates and sound economic conditions."

Today, says Crews, interest rates are low, but people are nervous that they might lift. When rates start to lift, they affect the property investment market. Investors pull out of the market. Capital values go down.

The average punter reads about the Government's free-market intervention policies and is frightened, says Crews. "It's not so much what they're actually doing as what they're perceived to be doing. But when the Employment Relations Act was passed, the world didn't end."

Changing interest rates, the shrinking investment market and the net outflow of population are all part of a normal real estate cycle. However, the uncertainty causes people to sit and wait.

The future is bright

The good news, says Crews, is the pressure continues to build. "People eventually have to make decisions. The cycle will start again. Auckland has a strong economic base, with the strongest influence on our economic climate. Auckland will continue to dominate. It has its own momentum. Growth projections are fantastic. How do we keep up with it? The Auckland market will continue to flourish."

Mark Thompson has long predicted that things would pick up once the Employment Relations Act came into force.

"The uncertainty of the unknown is worse than the final product. People who are borderline on decisions will seize on certain things as a reason for not doing things. Once it's happened, the uncertainty is removed."


He also says the weather has an impact, and the end of the winter traditionally signals a burst of activity on the real estate front. "Lots of people have been waiting for things to flow again. Now they realise it's a good time to move. Otherwise they run the risk of interest rates rising."

Ian Mitchell who is research manager for Darrochs, confirms the Auckland market is going through a period of adjustment in terms of values and volumes. He says positive underlying factors support the market as it heads into the future.

"Auckland is recovering from a surge of building activity in the late 90s, which brought extra stock. But Auckland's population is projected to grow at 1.5 to two per cent per annum. That will place pressure on the residential market.

As a consequence it will stabilise and recover.

He points to the city's regional growth plan, which prepares for ongoing intensification of residential areas to cater for an extra million residents over the next 50 years. "That will underpin values in the long term, particularly in areas close to major employment, recreational and entertainment nodes," he says.

New Zealand loses around 10,000 people a year, but the Government is reviewing its policies to reverse the trend, and any fall-off in emigration will work positively for Auckland.

* Part 2: Following the trends

* We welcome your comments and ideas. Please send them to Real Estate Summer Feature, The New Zealand Herald, PO Box 32, Auckland.