The New Zealand property market is always a popular topic of conversation. The market is booming! The market is in free fall. How will interest rate cuts affect the market? We’ve all heard it before.
What we sometimes forget is that ‘the market’ is made up of a group of people. Yes, that’s right, it’s a collection of real human beings! And those human beings have decided that it is time to buy a home. They have hopes and dreams. They are emotional, or not. They have spent time saving their income to fund a deposit and then asked the banks for a mountain load of debt. From there they set about looking for the best value home or investment property that their money can buy. They are on their own individual journey, which they may decide to hop off with one adverse headline. And they often do, all at once!
This month I discuss how buyers who make up ‘the market’ behave …and why.
Nothing Is Perfect
If you’re currently selling (or have ever sold a home) you are likely to have received feedback from ‘the market.’ Sometimes its complimentary, other times it is hard to take. Negative comments made about your colour scheme or the way your home feels, and it can feel personal. But while it might feel like the buyers are judging you, they aren’t. At any given time, buyers will be viewing and considering many properties which are for sale at the same time as yours. Their feedback is likely to be based on their personal taste, appetite for taking on a renovation or end use for the property (among other things). As vendors it is important to remember that when we brought our homes, we probably didn’t like everything about them either, but we still decided to buy it. The good news is your house is not perfect, and neither are the other homes on the market, although some will appeal more than others. So, take time preparing your home to ensure it appeals to as many of those buyers as possible.
Buyers Don’t Value Our Emotions
The endowment effect is an emotional bias which causes us to put more value on the things we own than the market does, sometimes irrationally so. The inverse is also the case. When we are considering an item which we don’t own, or has no emotional value to us, we believe it is worth less than the market value.
The endowment effect is ever present in the world of real estate. Homes have huge emotional value to us as owners. We scrimped and saved to buy them. We raise our families in them. We renovated our homes and poured our heart and soul into the design. We love our neighbours and community. We understand. Unfortunately, the buyers know nothing of the history of our homes, or the memories we have made. Nor do they care.
Across the course of a campaign, we as agents aim to support buyers to form an emotional connection with your home. Because a buyer who is emotional will always pay more than one who isn’t. A great example would be the comparison between an emotional buyer who has found their dream family home and an investor looking at it for a simple investment return.
Not Yesterday, Nor Tomorrow
Something we find hard to grasp, even as agents, is that buyers are not concerned with yesterday’s prices nor the future value of your home, they are only looking at the price today. The post Covid market correction of 2022/2023 has highlighted this point repeatedly.
We often catch ourselves saying wow that is cheap or it must be worth more. And we can understand why vendors do the same. The reality is that the Covid market conditions were different. Record low interest rates, a booming economy, FOMO, and lack of anything else to spend money on saw the buyers running to buy new property! None of those factors are at play today. Instead, we have sky high interest rates, we’re in a recession, the cost of living is crippling us, and FOMO is nowhere in sight. And that means, people, yes real people, are holding off. Now while this may sound like doom and gloom, the decision to sell still lies solely in the hands of the vendor. And yes, while the buyers form the market, if the price isn’t right there is no requirement for the vendors to accept it. Their decision to do so is likely to come down to their motivation for the sale. A lower value has little impact on someone buying and selling in the same market, while someone who has bought at the peak will likely have to accept a loss if they wanted to sell today making it a bit harder to accept.
I’ve often said, think about the market as you think about the weather, it is what is. Sometimes it’s good. Sometimes it’s bad. And sometimes it’s just ok. But on a positive note, the adage remains. Given time, property prices will rise. What time is the only unknown.
How To Get the Best Out of Your Market
The good news is that you can have some influence over your market if you understand what the drivers are. According to property commentators we are in a buyers’ market. The key indicators are high stock levels, properties taking longer to sell and methods of sale not producing the same results as they would in a stronger market. My take is that it is always a sellers’ market, meaning if there are buyers looking to buy you can create an advantage in your favour.
In the current environment I have worked out that you stand about a 25-30% chance of selling. That is the right property came across the path of the right buyer. This is pure chance. If you would like to increase your chance of selling to around 70%, it is important to understand how to entice buyers to offer. The first rule in this market is not to try and find the result at the beginning, and by this, I mean launching any campaign with a price. It’s a dangerous strategy and when priced incorrectly, a guessing game at best, could cost you weeks on the market and tens of thousands off the result.
The key to generating an above market result is keeping price out of the equation. By doing this you allow buyers to form an emotional connection with your home, which when put in competition with other emotional buyers, will drive the best out of the market. The options, hope or well considered strategy and to quote Red from the movie Shawshank Redemption:
‘Hope is a dangerous thing. Hope can drive a man insane’.
The Wellington Market
Slow would be the best way to describe it. As always good properties continue to sell well, while the ones that have been neglected, not so much.
A lot of focus has been given recently to public service cuts and this is likely to continue as we head into the budget at the end of May. For those of you with an interest in politics you may have seen this play out before. Come budget day the books are likely to be better than anticipated, the cuts will have been finalised and the buyers will start committing to their search once more. Currently we don’t have a property market problem, we have an employment confidence problem.
Thanks again for all those who take the time to read the Barometer, we enjoy hearing your feedback. If you have any burning topics you would like me to discuss, please don’t hesitate to reach out.
Wellington Market Quick Stats
What’s on in Welly?
The Best Exotic Marigold Hotel, St James Theatre, 7-12 May 2024
First, it was a bestselling book, then a blockbuster movie. Now ‘The Best Exotic Marigold Hotel’ is a smash-hit stage adaption. The beloved story is a joyous comedy about taking risks, finding love and embracing second chances, even in the most surprising of places.
Described as “comedy gold”, the story revolves around a motley crew of elderly Brits who have grown disillusioned with their own country and decide they want a change. They don’t want to inconvenience their families and feel invisible in the country of their birth, so they move to a new “residential hotel” in India. The Marigold Hotel ends up changing their lives forever.
Click here to purchase your tickets
Hurricanes vs Moana Pasifika, Sky Stadium, 17 May 2024
The Hurricanes have brought a mix of exciting new talent and experienced campaigners this Super Rugby Pacific season. Grab a bunch of mates or take the family along for this Round 13 clash against Moana Pasifika.
NZ Art Show, TSB Arena, 30 May 2024 – 02 June 2024
Aotearoa’s premier annual art show is back. For 21 years the NZ Art Show has provided a world-class platform for the appreciation and acquisition of contemporary art. It has a history of connecting art lovers with quality works of art. It doesn’t matter if you’re a seasoned collector or buying your first piece — there’s something for everyone. There are 2,000 original artworks on display. The show spans sculpture, photography, abstract, and traditional mediums. Many of the 200 talented artists will be there so you can have a kōrero with them and find out more.
In addition to the art on display, live music by local and national acts and DJs will play throughout the show. All specially curated by renowned New Zealand musician Barnaby Weir.
Meet the Ben Stevens & the Team
If you, or anyone you know, could benefit from a considered market assessment by Wellington’s only licensed agent and registered property valuer, please do not hesitate to call. We are always happy to help.
