Mexican stand-off easing?

"Sold" signs are popping up all over the place on houses that have been on the market for around 6 months.
(those that didnt take them off the market)

From research I have done the selling price is about 25% below original asking.

There have been comments that rents are easing with the properties that have not sold, being withdrawn from the market and made available for rent.
However these are largely separate markets. That is, many investors own investment properties, such as blocks of flats, rather than family homes. The rents are still rising for such investment properties, particularly those close to workplaces and on public transport routes.

As an agent working in Wellington's Northern Suburbs, I can contest to this "stand off" as you call it. The websites that my company profiles properties on have all experienced strong visitor numbers suggesting that there are many people looking. There has been more movement in the past month. We have found stale stock starting to move as sellers become a bit more flexible in price, but also as buyers come to the realisation that they are in Balanced Market conditions. It certainly isn't the buyers market in my area that the media is making out. You only have to pick up a Property Press to see how few homes are on the market - we do not see a build up of stock by any means, in fact, our company is currently on a bit of a listing drive as turnover and attrition to the rental market has eaten up much of our stock.
The phrase has been coined "The Accidental Landlord" which describes the scenario perfectly. A reasonable number of sellers in my area of focus, who have seen their property become stale on the market, are renting it rather than drop in price.
There is no doubt that turnover is down (as any agent will attest to), but prices are holding at current levels as the number of active buyers equal active sellers. It seems that many buyers are in wait and see mode, but the smart ones are actively snapping up some great buys. Some more positive reports in the media will be the catalyst to bring some spring growth into the housing market. The stage is set for a much more optimistic end to the year with the almost inevitable interest rate drops coming and the election goodie bags yet to be opened.

You make it sound like the investors are the ones who are going to do all the moving, and that the Vendors have held their ground successfully and now control the Mexican standoff... I think that this is slightly premature.

Yes, I agree that the investors are out there waiting with pre-approved finance etc, and that the margins will look slightly better due to the meager easing of interest rates which allows an investor to raise offers a little (I stress a little).

However you really need to take into account that the market hasn't hit the floor yet!!!! and still has about another 12 months of downward movement to go through before it stabalises and flattens out for 2-3 years. Under this scenario you can absolutely guarantee that investors aren't about to buy at a premium and see the value eroded in 12 months time, its just not good business.

I think you will see some more mexican standoff for at least another 1-2 months and then some vendors are going to be in a tighter position than previously, whereas the buyers have time on their side.

Yes, the vendors have bought some time by renting their properties out, but conversely this has flooded the rental market which is now pushing down rental returns because there is oversupply and renters have greater choices now..... and leverage.

The outcome of this situation is that these accidental landlords are putting extreme pressure on the the normal fulltime landlords by increasing the vacancy rates well past workable levels.

If this income stream gets affected to much then these fulltime landlords may inadvertently become "Fire Sale Vendors due to credit crunch pressures... because they do not have a back up option (like renting) as they other vendors had.

What properties do you think the investors will be interested in picking up then?
I think it will be the fire-sale rental properties at firesale prices not the properties held by the middle of the road vendor who is currently doing the Mexican standoff.... which is why we haven't hit the floor.

Something to think about aye

The problem that I see here on the North Shore is that yes people are putting their houses out for rent after spending 3-6 months on the market after not getting many offer if any. These houses were often bought average prices fairly recently (last 3 years) and the rent they get now usually only covers half the cost of the mortgage alone not to mention rates and other expenses. Often the idea is to rent it for 6-12 month and than to put it back on the market. The problem I see is that the tenant will not look after the house as well as the home owner and sooner or later the 'accidental landlord' will realise that this 'investment property' is just a time consuming big black hole for their hard earned money. Negatively gearing means you are NOT making a profit...
Some weekend investors are realising this already and are selling at very deflated prices.
What will happen to the market when the rest realise what a pickle they are in?

Example: I spoke with a fellow who has a job in Aussie and now wanted $800 a week rent (the market rent for that house should be between $390 and $420) His justification was that he needed to cover the cost of mortgage and renovation cost (it is now a very niece house - brand new reno)- what is the average tenant going to do to the brand new kitchen- anyone with experience will know what it will look like in 6 months. I see may of there examples all over the neighbourhood.

I am not sure if 1/4 or 1/2 a percent drop in interest rates will help these people much?

I know a few clients who would like to trade up but want to get the right price for their own home first.

This is not the best way to think I know since they are buying in the same market, but psychologically some people would rather sell first even if we can get bridging finance to cover the time between buying and selling.

Here, here Mira.... totally agree.

Is some ways all the vendor is really doing is buying time to get a lower price.

I think in most cities you are going to find what in 12 months time (mid 09) the general difference between what the median house price was in Dec 07 and the median in 09 will be about a 20-25% drop in price... from then on it will pretty much flat line for a couple of years.

So under that scenario, how long do these vendors intend to rent and wait for the price to come back up? before the quality of the home is affected?

Most of the movement is going to come from the Vendor side, it is not a matter of if but when.

Oh yeah.... plus how desperate the situation becomes!
I don't think we'll see to many buyers who are forced to buy.

The fact that the OCR has been reduced 25 points doesn't mean much for home owners at the moment. The decrease still has to filter through to the home loan market. By the time it does, inflation (or stagflation...yes we are in for a seriously bumpy ride) will have negated any benefits of a slightly lower interest rate. Sellers that are still hanging on could be in a heap of trouble. They will be competing with desperate sellers in the next couple of years. Everything works in cycles and housing is on it's way down. Hang on buyers. Better times are ahead.

Good article. I've been cautiously looking for another investment property and am now looking a bit more seriously. Probably buy before spring. My worry is that when people realise the market is at/near the bottom, buyer demand will kick back into life - so I want to get in while the going is good.