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What Do Falling House Prices Mean for Building Companies?
Even though demand for new home builds is down significantly on last years figures, and the industry is facing harder fiscal pressures, according to home building companies the overall outlook is not as negative as you may think.
It is widely reported that property developers are facing many issues, such as labour shortages, supply shortages and delays, increasing construction costs, and restricted access to cash.
One developer recently estimated that only about 10 percent of buyers currently in the market were seeking off-the-plan properties. Overall house sales have fallen drastically since late last year, with estimates that the drop from September last year is sitting at around 10.9 percent nationwide.
As a result of this some developments are having to be paused or even stopped entirely. Along with this, the construction industry saw its highest ever number of insolvencies. Between July and September there were 107, up 50 percent from figures last year.
Yet, in a positive turn of events, Fletcher’s CEO, Ross Taylor, seemed to think that the arrival of spring was going to draw buyers back to the deflated housing market after a period of decreased buyer activity. Accordingly, the company’s visitation rates, and general inquiries were said to be looking healthy.
The director of Stonewood Homes, John Chow, indicated that buyers were waiting to see what was going to happen with costs and interest rates. Which left many people uneasy about jumping into a new home build.
Getting finance is usually a problem for many buyers, but as the market continues to stabilise, inquiries are only set to start increasing.
The shift in the market is still being felt however, and there remains significant variation in demand across the country’s regions. Unsurprisingly the regions that saw the largest price gain are experiencing greater change, but in more reasonable regions the decline is relatively small.
Buyers are still concerned by the rising interest rates, but at the same time, the price to build is not going to reverse and become any cheaper. So, if buyers are really keen to opt for a build, then the current time is favourable, some expectations may need adjusted, but it can still be achieved.
This is because costs have mostly stabilised, and the large product backlog has been sorted out. As always, project management and ordering the materials early are key steps to ensuring a build goes to schedule.
Over the holiday period there is always a slight lull in the market, but come the new year, buyer inquiries are expected to be back to the levels that they were before the Covid lockdowns.
The CEO of Signature Homes, Paul Bell, said that for his company, their sales of completed units was down around 24 percent from this time last year, and the gross value of all sales had decreased by 18 percent.
For Signature Homes, business was at around 75 percent of what it was this time last year, so things certainly aren’t dire, but the 25 percent decline does reflect the drop in buyer demand.
Paul Bell said that spring had seen an increase in inquires for Signature too, and that the upcoming warmer months may see people more motivated to enter the market.
Migration is set to increase, and many migrants who have recently been granted residency will be eager to get into a new home.
However, for buyers there is a lot riding on access to finance, and if interest rates and inflation rise too high then the negative impact on demand is sure to be even more significant.
Within the industry itself though, inflationary pressures are easing, but the insolvency figures are not a total surprise, and there is an expectation that insolvency figures may continue to rise as some developers will have been caught unprepared by the cost pressures.
The head of sales at Ockham Residential, Kate Duncan, said that compared to last year when they were selling apartments daily, the market this year was considerably different.
They knew however that those levels of demand were not going to last and had planned accordingly for the time when demand dropped from its all-time highs. Even with this foresight, the decline was still difficult to face.
The new-year surge did not happen and there was even lower demand during winter, but as spring has come knocking so have buyers wanting to inquire about homes.
Four apartments from their new development are already under contract, and three more of their five planned developments for next year were sold too, with the unsold two seeing positive buyer interest.
Developers are challenged by the increase in costs and the uncertainty over housing that still remains within the market, which is still making things hard for first-home buyers trying to enter the market.
Yet, those who make up a big percentage of apartment buyers are downsizers, and these buyers typically have access to liquid capital and as such are not affected by the change in prices or interest rates.
Although there was significant benefit from the bubbling market last year, there is a sense of calm that is coming with a more measured and more realistic property market.
The managing director of Williams Corporation, Matthew Horncastle, also noted that the market was seeing some activity, as is custom in spring, and the way buyers are discussing property is crucially improving.
Many people feel that the market is at its lowest floor and that things will only stabilise and grow, there is a much greater positive sentiment toward housing than during winter and this is being reflected in a broader increase in inquiries.
Williams Corporation is one of New Zealand’s largest building companies and has 36 projects currently being marketed. Their sales had dropped by around a third to 530 from 800 at this time last year, but the market seems to be coming back up to a more normal level.
People are still eager to buy and own their own homes, and even though restricted access to finance and high interest were making it much harder for buyers to do so, many buyers are still securing ways to ensure they can enter the market.
There is likely going to be a greater focus on build and finish quality, the buyers who got caught up in the frenzy of last years’ market will not have that sense of panic. They will do their research, take enough time, and ultimately make a thoughtful and informed decision in this stabilising property market.