Record low interest rates fueled house prices to record highs during 2020 and 2021. However, as low mortgage rates come to an end, pricing momentum has turned, shifting the housing market back in favour of buyers, albeit with prices and income multiples still at historically elevated levels.

House price growth has started to turn negative, with prices falling 3.3% between the March and June 2022 quarters (REINZ, seasonally adjusted). Sellers are starting to get the message too, with asking prices on realestate.co.nz falling 2.6% in the same period. This shift in pricing momentum takes time to propagate as buyer and sellers adjust their pricing expectations.

Asking prices typically represent a starting point for negotiations, a point from which sellers negotiate down from. However, this changed in the boiling hot housing market of 2020 and 2021, with sellers nearly getting what they wanted throughout this period. In other words, it was a seller’s market. From October 2020 to November 2021, median sales prices averaged 96% of asking prices, the highest ratio in the history of this dataset running back to 2007.

We can’t make too much of these numbers on their own given it is a comparison of median sale prices with truncated mean asking prices, so there’s a little bit of comparing apples with oranges. However, 2021 is clearly an outlier in a series that ranged from 81-91% pre-COVID. The ratio has come back in line with historic levels, sitting at or below 90% since February. This change represents a shift in negotiating power back towards buyers.

Inventory – the number of houses on the market – has built up substantially as sale prices are falling further short of asking prices. In a falling market, it takes time for sellers to adjust their pricing expectations to meet the market. Inventory normally drops going into winter, but inventory in the three months to July 2022 was 91% higher than in 2021. This increase was simply driven by houses taking longer to sell, as the number of new listings coming onto the market has gone sideways.

The sharp increase in inventory has pushed up the average time houses are taking to sell. The median time to sell has jumped from 30 days in June 2021 to 42 days in June 2022, slightly higher than the 41 days in the pre-pandemic times of June 2019 (seasonally adjusted). This increase reflects shifting dynamics – from a sellers’ market to a buyers’ market. Buyers now have more time for due diligence, and a greater opportunity to negotiate a sale price below the asking price.

Time to sell has increased in nearly every region in the June quarter - apart from Gisborne and the West Coast, which registered slight decreases. The number of days to sell has increased by over 75% in Bay of Plenty, Hawke’s Bay, Manawatū-Whanganui and Nelson, and by at least 30% everywhere else.

Inventory has jumped up across every region, more than doubling in Wellington, which has seen the sharpest fall in house prices in the past three months. Inventory has also more than doubled in Hawke’s Bay, Nelson-Tasman, Bay of Plenty, Manawatū-Whanganui, and Waikato. Such a large increase in inventory is likely to drive deeper price cuts in these regions than the rest of the country. Conversely, the modest 30% rise in inventory in the West Coast might not push prices down substantially, and in fact could bring some well-needed liquidity to a relatively thin regional housing market.

The increase in inventory and sales timelines represent a tougher market to sell in. Buyers can afford to take their time, undertake thorough due diligence, and be more discerning in their purchases. Conditional offers involving due diligence or sale of the purchaser’s own property could become successful once again. Sales timelines for new developments are likely to extend, adding financing costs to developers struggling to create opportunities between rapidly rising construction costs and falling house prices.