Investor says property market ‘tanking’ and auctions have had their day

Andy Thackwray has been investing in property for 20 year, and on Friday he watched his daughter’s Whenuapai property join a dozen others as it failed to sell under the hammer.

Only two of the 14 properties at the Barfoot & Thompson Auckland auction sold, with the rest being passed in.

Thackwray doesn’t mince his words – he says the market is about to tank, and auctions have had their day.

“Selling by auction is a good thing to do if you’re in a price range where you’re going to get a lot of interest, and there’s a lot of people in a position to be able to buy,” he says.

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But with the market currently retracting, and a “perfect storm” brewing of rising interest rates, tighter lending, and rising inflation, Thackwray says that’s not the reality most sellers are facing.

He sold two of his properties last year after becoming convinced the market would fall, and says prices could tumble 10 per cent, and properties in the first home buyer market and those earmarked for development could fall 20 per cent.

He says the family decided to sell by auction because the market had not yet turned when his daughter’s property was first listed. His advice to those selling today is to try and sell quickly.

The Whenuapai property’s auction ran like many others have recently.

The auctioneer began by extolling the home’s virtues – its 950 square-metres of land, new ventilation system, its proximity to motorway connections – before opening bidding at $1.2 million.

When no hands went up, he opened it for offers, and after three calls, the property was passed in.

Thackwray says there was a bidder in the room, and other parties with conditional offers are interested.

The result in the auction room on Friday is becoming common.

At another of the company’s Auckland auctions on Tuesday, seven out of nine properties were passed in. A tenth was withdrawn before the session began.

Such scenes are a world away from what played out in the same auction room last year, where bids came fast, expectations were smashed, and one central Auckland property without a toilet infamously sold for more than $2 million.

At a Harcourts auction in Wellington on Friday, one out of the four properties under the hammer sold, with the rest passed in.

Christchurch was the exception, with an auction on Wednesday resulting in 21 of 33 properties selling under the hammer.

Sellers move away from auctions

As large numbers of properties fail to reach reserve, sellers are moving away from auctions.

Statistics from property data firm CoreLogic show nationwide the proportion of properties listed at auction as the first method of sale dropped from about 35 per cent last year to 20 to 25 per cent this year.

In Auckland (which has long been auction-central with half of all auctions happening in the city) last year about 60 per cent of homes were first listed at auction – a figure that has fallen to 40 per cent this year.

Similar trends can be seen across other main centres, except in Wellington, where CoreLogic head of valuations Nick Goodall says only about 5 per cent of homes sold under the hammer during 2021.

“Christchurch saw the auction percentage increase throughout 2021, from about 40 per cent to 60 per cent at the end of the year. So far this year that share has dropped back to 50 per cent,” Goodall says.

Tauranga has fallen from 70 per cent in 2021 to about 50 per cent, and Hamilton has also dropped.

Goodall says the move away from auctions reflects a cooling market.

“There’s less demand and competition for properties which are generally the settings that make auctions so popular,” he says.

Trade Me data also shows auction drop-off

Trade Me property sales director Gavin Lloyd says last month 17 per cent of properties listed nationwide were for sale by auction – down from 26 per cent in February 2021.

The same comparison has the proportion of properties listed for sale by ‘enquiries over’ or ‘price by negotiation’ rise from 42 per cent to 49 per cent.

Lloyd says this is happening at the same time as the number of properties for sale nationwide leaps up, increasing by more than a fifth year-on-year, and reaching pre-Covid levels for the first time.

In the Auckland region last month 24 per cent of homes were for sale by auction, which Lloyd says is a marked drop from February last year when 41 per cent were listed for auction.

Wellington is also showing strong signs of a shift to a buyers’ market, with Trade Me reporting supply in the region was up 71 per cent in February compared to the year before, while demand was down 8 per cent.

Auctions a ‘multiplier’ of buyers feelings

University of Auckland associate professor Mike Lee specialises in buyer behaviour and consumer psychology.

He describes auctions as a multiplier of buyer sentiment – when the market’s running hot and the FOMO (fear of missing out) is running high, an auction will increase the heat as buyers compete.

When the market is falling as it appears to be currently, it works in reverse, Lee says, and can throw cold water on a property, devaluing it in buyers’ eyes and possibly emboldening them to make lower offers.

“They (auctions) show you really clearly when no-one is interested, and no-one is willing to take a chance, or no-one thinks it’s worth what the seller thinks it’s worth.”

Lee says homes were such a desirable investment, a nice property in a good area will always be an easy sell.

For less desirable homes, it may be best to stick to tenders rather than sellers trying their luck at auction, he says.

Auctions remain ‘the best of the rest’

Harcourts national auction manager Aaron Davis disagrees with Lee, and says auctions aren’t going anywhere.

He says because auctions deal in cash, they avoid the pitfalls that come with conditional offers.

“Auctions have been around for 2000 years, even more so now auctions become more important because cash is the only currency that has any credibility,” he says.

Davis says even if there is only one cash buyer in an auction room, that bidder is still competing with those waiting in the wings with conditional offers, and will therefore still bid to secure a property.

He says good quality homes will still sell at auction, and it will be the lower quality market that moves towards other methods of sale.

“The flight is towards quality now. A year ago they (buyers) had to buy everything.”

The fees

Auctions also come with a cost in the form of an auctioneer’s fee, which Davis says usually sit at about $800.

Wellington-based Harcourts auctioneer Darryl Harper charges $690 and says the amount varies depending on location, auctioneer and company.

He has been in the industry for 23 years and says auctions haven’t had their day, because they were an effective way of finding out what sellers would pay for a property, and were useful for flushing out cash buyers.

“If there isn’t any cash [buyers], it flushes out the conditional interest, and we just work with it from there.”

Harper blames the lacklustre performances at auctions recently on stricter lending rules under the Credit Contracts and Consumer Finance Act which came into force in December, and are currently being reviewed by the Government as to how they apply to mortgage lending.