Even without the impact of the Christchurch earthquake, it was tough going out there with buyers sitting on their hands and values continuing to drift. Now, it may get even harder. Bruce Morris reports.
Sale levels virtually everywhere as low as they've been and prices depressing in most patches, with honourable exceptions through Auckland... is this as bad as it gets, or is there more drift before the pick-up?
That was the question posed on February 21 when this piece first left the laptop. The next day gave the answer as the Christchurch earthquake struck. Across the country, chances of an early pick-up in the residential market seemed to disappear in one violent episode.
The quake was so ruinous that it will send waves through the New Zealand economy for at least the next two or three years. It is difficult to see how that platform can do other than hurt house sales and prices.
The quake's impact will put huge extra strain on the nation's finances, and that will run right through the economy, with all the uncertainty and lack of confidence that accompanies the potential double-dip recession.
Before February 22, the best that could be said was that the market was patchy, with bright spots in good suburbs in the cities, especially Auckland.
But elsewhere in the upper-North Island it was looking pretty sad in the lesser city suburbs and downright dismal in tiny rural settlements, provincial towns and the coastal belt where prices continue to slip under the pressure of negligible demand.
Unlike the boom years from 2003 to 2007 - where every area got a lift at some stage, dragged along by the ripple effect through a relatively racy economy encouraging investors and first-home buyers to accept the money handed to them by flush banks - 2010 was awful.
There were just 56,000 sales in the year - down by more than half from the peak of 120,000 sales in 2003, and a world away from the exciting hum of 2004 (107,000 sales), 2005 (104,000), 2006 (102,000) and 2007 (92,000).
A glance at the Real Estate Institute's days-taken-to-sell indicator confirms the status of 2010 and its ugly sister, 2008, as true anni horribiles. In 2008, it took 48 days to sell the average New Zealand home, and last year - helped by a fair market in good Auckland suburbs for quality listings - the indicator came down to 41 days.
Put that alongside the boom years - 28 days in 2003, 29 in 2005 and 30 in 2005 - plus historic sales volumes and the conclusion is unavoidable: overall, outside parts of Auckland and Wellington, the residential market is dreadful.
This is not bust following boom, though it is close to that in some sectors - and it is impossible to calculate the impact of the quake on future prices. The decline since the peaks is substantial and, while signs of stability were emerging before February 22, the drift in many places continues as buyers pick over the offerings and demand bargains.
Investors have moved out, many with burnt fingers, forced sales still run alongside the tough local economy and potential fi rst-home buyers are building their deposits, knowing surging house prices are not an issue, even if rising Auckland rents chew into savings.
Looking to retail for a clue to real estate trends may not be entirely logical, but growth in both sectors is linked to consumer confidence and this comment from Briscoe Group's Rod Duke doesn't inspire much: "I think it's going to be just as diffi cult [in 2011]. I can see no silver bullet. It's going to be just as tough in the year ahead as in the year just past."
The real estate companies, naturally, put a brighter spin on things and argued the present dip was merely cyclic. Once the economy started to move and confidence returned, prices would shift with them, they said, though no one was predicting a boom or wild capital gains in the near future. Then came February 22.
Before the quake, a general stabilising of prices over the next two or three years seemed most likely - with pockets of gains in the cities, especially Auckland, contrasting with continued drift in rural communities losing their young people and families to jobs and opportunity elsewhere. Perhaps with a small and steady creep after that, probably below the rate of inflation. Now even that modest advance
appears doubtful.
New Zealand house prices are still high on international benchmarks when set against household income, and that hardly offers an ideal platform for price rises in at least the medium term. Throw in fl at wages, wary banks, bruised investors and a Government that wants us to save rather than spend - and just where is the breeding ground for the
demand that fuels prices?
Against that is the likelihood, post-quake, that interest rates will stay lower for much longer, plus a lack of new building to accommodate a growing population. If building permits stay low, immigration picks up and transtasman migration slows, that will boost demand and
potentially increase prices.
But we're talking Auckland and the other big cities here. New migrants don't head for Kaitaia or Putaruru, or buy a bach at Opotiki.
For "quality" migrants, turning off the immigration tap is easier these days than turning it on, so population growth can, to some extent, be controlled when blips emerge. There may be an Auckland housing shortage for a period, especially as Christchurch draws building industry professionals south. But it seems unlikely in itself to cause a sudden lift in prices.
Before February 22, Tony Alexander, chief economist of the BNZ, was more optimistic about the market than many commentators.
"I don't fall into the camp of thinking you'll be waiting four years [from now] before getting back to 2007 prices," he wrote in a newspaper column last month. "We think prices generally are going to move later this year when people start recognising there is actually a physical shortage of property.
"This will continue through 2012 when the chances are good that there will be some reasonable price increases. We expect the average house will then sell for more than the peak of 2007."
So, while there were plenty of commentators with an entirely different view of the path ahead before the earthquake, it wasn't all pessimism out there.
However, even if parts of the country now get back to their 2007 levels in 2015, with inflation running at between 3 and 4 per cent, it is hardly a ringing endorsement of the traditional Kiwi trail to personal wealth.
While crystal-ball gazing four years ahead, it's interesting to also look back to the market peaks of nearly four years ago and see what's happened.
QV's New Zealand house price index is now 5.8 per cent below those peaks. In other words, the house bought for $350,000 in October 2007 is now valued around $330,000. In some parts of the country people might have done better; in others they could have done worse.
If the price claws itself back to $350,000 by 2014 or 2015, most people will probably grin and bear it. Considering the endless theories that prices were set to tumble after a boom that collided with a global economic crisis, those who chose to make a home to live in rather than just to make money may be grateful, if not exactly kicking up their heels.
Set against that global background (and looking at countries such as the United States), peak-parity at 2015 and a slow creep up to 2020 seems perfectly respectable.
With the pulling power of the big smoke, Auckland should do better than that because the QV index shows it is now just 3 per cent below its 2007 peak (as against 6.5 per cent in Wellington), even though prices eased slightly in 2010.
But provincial centres such as Hamilton and Tauranga (with median prices of $360,000 and $372,500 respectively for the quarter to December 31, 2010) are a full 12 per cent off their highs and it will be difficult for them to make up all that headway.
In the future, both cities - and others like Rotorua and Whangarei - may become even cheaper in relation to Auckland (which had a December 2010 median sale price across the whole new city of $507,000). But there is no certainty anywhere now. The grim events of February 22 were restricted to just a few square kilometres of Christchurch, but the ripple will be felt in all corners of the country for years.
* From the New Zealand Herald's quarterly 'Property Report' - a guide to house prices and great places to live.
