Opinion: Watch for seasonal change in house sales data

Those looking for an answer to the question as to whether house sales have slowed and price increases have stopped because of the Government’s most recent initiatives, will not find it in April’s sales data.

There is a greater chance than not that any changes to sales numbers or prices will be because of normal season changes rather than the new regulations.

For the past 10 years*, the number of homes sold in April have always fallen below those recorded in March, and for half of those 10 years the average and median sales prices have also edged lower than in the month previously.

The property market has quite distinct seasons and the end of March invariably marks the point at which sales numbers and prices start to edge lower as we move into autumn and head towards winter.

Come the return of spring, prices and sales numbers start to rise again.

The new regulations introduced by the Government in late March will inevitably have some impact, but these may not become apparent till data covering May’s sales is available.

Based on my observations, the biggest impact the Government changes have made so far is to create doubts in the minds of buyers as to whether they are ‘paying too much’ for a property.

Economist Tony Alexander reports on this rising phenomenon in his April newsletter, saying that real estate agents he surveyed noted that concerns among buyers overpaying had risen from 16% in March’s survey to 25% in April.

He rightly notes that concerns about overpaying is a different issue to those about negative equity (where the money owed on the property is greater than its resale price).

Doubts around overpaying is a natural reaction when making such a large financial commitment and the not unreasonable desire to not pay more than necessary.

For me, the real question is whether people have a belief market prices might collapse.

I have made the point on numerous occasions in this column, that when making decisions about a home in which you intend to live, that your time horizon should be long term.

The Real Estate Institute holds to the view that the average time for home ownership is 7 years, and the question I would ask when considering today’s prices is: “what will be the price in 7 years.”

If the time frame for holding a house is 7 years what it will be worth in 12 months becomes academic.

Naturally, investors bring a different perspective to their decision making.

The feedback I am getting from the field is that there is less investor activity at the present time as this group reappraises its options.

Certainly, there is no shortage of buyer interest from first time buyers and owner occupier’s intent on moving forward with their housing intentions, and although vendors are continuing to put their property on the market, choice for buyers remains limited.

At the heart of this issue is the realisation that the historically low mortgage interest rates currently available are unlikely to rise significantly anytime soon.

People feel now is the time to act.

Existing investors are certainly not abandoning the market in great numbers, but many are taking a harder look at the return they are receiving on their investment.

In the January to March quarter our data shows that the average rent paid for a three bedroom home across Auckland rose from $597 a week to $603 a week, an increase of $6 a week or 1%.

An investor paying the average price for a three bedroom home ($1.2m in March) and charging the average rent is now making a gross return of 2.63%. A year ago, the gross return was 3.28%.

Given this trend, rents will undoubtedly come under serious review.

*Barfoot & Thompson’s sales data