A warning for sellers: could a longer listing mean a bigger loss? Experts urge homeowners to adjust expectations

Helen, a woman living in Waikato, recently spent six months trying to sell her home. Although she received several offers, they were well below her expectations, and she ultimately decided to withdraw the property from the market.

 

Her experience is far from unique. Increasing numbers of homeowners are finding that the longer their properties remain listed, the lower prospective buyers’ offers become. Experts warn that homeowners could face greater financial losses if they fail to adjust their expectations promptly. In this market, pricing and the timing of a sale have become key factors in determining the final return.

 

Interest rate concerns and buyers’ difficulties

 

Helen recognised prospective buyers’ concerns about high interest rates, with many unable to afford mortgage repayments. However, she also knew that the longer her house stayed on the market, the lower the offers might become. After she changed real estate agents, her new agent advised her to take a more realistic approach to pricing, as the house had already been on the market for three months.

 

Some economists identify an oversupply of homes for sale as one of the housing market’s biggest challenges. This gap has widened significantly over the past three years. At the end of May 2021, there were 14,883 homes for sale. In June that year, 7,629 sold, leaving 7,254 unsold. By the end of May this year, the total number of homes for sale had risen 119% to 32,598, but sales had fallen 43% to just 4,356. This means the surplus of unsold homes increased 289% over the same period to 28,242. The latest property figures show that the market remains weak despite more people listing their homes. Sales in June this year were down by around a quarter on the same period last year.

 

Property economist Ed McKnight

 

Opes Partners property economist Ed McKnight said other sellers may face situations similar to Helen’s. Since February, house prices have fallen by an average of 0.85% a month. If a property’s fair market value is NZ$1,000,000, it could fall to NZ$987,000 six weeks later. Sellers who list at an excessive price may therefore have to accept less than they initially expected by the time they lower the price enough to find a buyer.

 

 

The risks of overpricing and the prevalence of discounts

 

McKnight cited a seller who hoped to sell for NZ$1,800,000, but received a highest auction bid of only NZ$1,750,000. After waiting several months, the property eventually sold for NZ$1,630,000, which was NZ$120,000 below the original offer, a reduction of around 6.8%. In a falling market, setting the price too high may leave sellers in a worse position.

 

CoreLogic head of research Nick Goodal

 

CoreLogic head of property research Nick Goodall said sellers nationwide generally accepted a median discount of 3.8% from their initial asking prices. This was an improvement on 5.3% in February 2023. Discounts were larger in some parts of Auckland, exceeding 5% on the North Shore and reaching 4.6% in South Auckland and 4.1% in West Auckland. The median discount was 3.5% in central Wellington and 2.8% in Christchurch. The improvement may reflect sellers adjusting their expectations, withdrawing their listings rather than accepting further discounts, or a combination of both.

 

Interest rate cuts will not bring a rapid housing market recovery

 

Many people are now pinning their hopes on interest rate cuts by the Reserve Bank of New Zealand to rescue the housing market, believing that a fall in the Official Cash Rate (OCR), followed by lower mortgage rates, will quickly turn the market around. Buyers will flood in, house prices will start rising, capital gains will follow and the housing market will return to prosperity. However, things are not that simple.

 

Once mortgage rates fall and this is promoted as a turning point for the market, potential supply could become actual supply, pushing the market further in buyers’ favour. Other factors could also adversely affect residential property. According to Stats NZ, there was a net migration loss in May this year, with 2000 more people leaving New Zealand long term than arriving. These figures need to be treated cautiously, as they may undergo substantial revisions following dramatic changes in migration patterns. However, if they signal a lasting shift in migration and net migration losses persist over the long term, the implications for the housing market will be more far-reaching. New Zealand’s economy is currently in poor shape, and even if mortgage rates fall as expected, the outlook for housing remains unpromising.