WHY ARE WE SEEING STRONG SALES RESULTS NOW?
/Ray White NOW Oct 2020
Real estate markets are driven by a number of factors however the two basic fundamentals of supply (the number of total properties for sale) and demand (the number of buyers active in the marketplace) play a significant role in establishing market conditions that favour sellers or buyers. In general terms, when supply is low and demand is high these conditions are favourable for our sellers. Conversely, when supply is high and demand is low these conditions are favourable for buyers.
So what are we seeing now? Supply We are well into spring and it’s the time of year when we start to see an increase in the number of new listings coming to the market. If you look at the numbers that are occurring each week, while the supply-side still remains strong in comparison to this time last year being up 13.59 per cent, this is not enough to service the demand level that is evident on a continued basis with the sales volume lifting by 49.46 per cent on the same time last year.
Demand Demand continues to outweigh supply. When looking at the number of potential buyers in the market there are several considerations that we take into account. The number of buyers looking online for property, the number of buyers who enquire on properties for sale, the bidding activity we see each week across our auctions and also the number of people actively gaining pre-approval for finance to purchase a property. Summary When looking at the reasons as to why we are seeing such strong results in our current marketplace, we need to look at what those key contributing factors are and what part they play when it comes to transacting real estate. Firstly, it’s important to understand the effect stock levels have on the market.
With stock levels still being a topic of conversation and the recent increase in new listings coming to the market, we are still not seeing enough stock coming to the market to meet consumer demand as we continue to outsell our inventory. The second factor is the depth of the buyer pool. This plays a significant part in building competition across properties along with giving buyers the confidence to purchase, as does the sale method. 11,700 Kiwi expats returned to New Zealand as of July 2020.
Vendors who have chosen to come to the market in recent weeks have been able to capitalise on the reported results due to two fundamental factors; being stock levels and the depth of the buyer pool. As mentioned, we have seen an increase in new listings coming to the market in the last week however the depth of buyers in the market continues to put pressure on house prices and affordability. In the last 7 days across New Zealand, Ray White had 191 properties scheduled to go to auction, leading to an auction day clearance rate of 78.7 per cent. There are several considerations we observe when looking at the number of buyers active in the market.
Buyers behaviour remains constant with their journey starting out by looking at property online. Evidence shows through our Ray White website that buyer online enquiries have surged on this time last year. To expand on this, industry real estate portals such as oneroof.co.nz, realestate.co.nz and trademe.co.nz/property are also reporting compelling evidence related to online enquiries. The next organic move in a buyer’s journey is to view the property, proceeding to offer or bidding at auction. We can evidently report on this through our transparent auction data. When we take a look at our auctions held over the past week, we attracted on average 3.9 registered buyers across auction properties. When we observe different aspects of the market, one point that remains positive is our active days on market. This is the average number of days a property takes to sell in current market conditions. We have seen a decrease of 5 days across the country from 39 to 34 compared to last year. This is evidenced by the strength of the market with favourable lending rates coupled with supply and demand placing downward pressure on the average days it takes to sell a property.
Buyers having the maximum financial capacity to purchase a property is one of the key leading indicators when it comes to buyer confidence. Loan Market, our loan brokerage partner, has reported over $1.2 billion in pre-approved loans across New Zealand. These are buyers that are ready to proceed with offers where no finance clause is required. So what factors are contributing to buyer confidence? Interest rates continue to underpin purchasers buying power and today interest rates are at record low levels, advertised from 1.99 per cent fixed for one year with the OCR remaining at 0.25 per cent since 16 March, 2020.
• Importantly, the general consensus among economists is that they will remain at these low levels for the foreseeable future.
• Interest rates are a driver of home affordability and in many areas, while prices have risen in the last 12 months, corresponding interest rates have reduced.
• Banks and lenders remain very supportive of lending for residential property. The chart on page 13 shows the monthly home loan pre-approvals recorded by the Loan Market Group, which is our loan brokerage partner and New Zealand’s largest independent broker that settles over NZ$650 million in loans per month. Pre-approvals are indicative loan approvals obtained by buyers before they buy a property to enable them to bid confidently.
• Record levels of government stimulus are part of the supporting reason behind a high proportion of buyer sentiment.
