Today Westpac released a report on the property market foretelling a double digit property price inflation in the near term. A bold call when we are still only just 12 month post the lowest point in the property market for many a decade.
The article on interest.co.nz headlines with a provocative title “Boom Times are back for housing” and will certainly generate a vast amount of comment.
I make no claim to be an economist and do not wish to challenge the assertions of the Westpac economists as to the probability of near term property price inflation or a subsequent tail off in late 2010. I do however wish to highlight some challenges to the data used as a substance to the claim – specifically around sales levels and listing levels in the market.
The opening paragraph of the report states:
New Zealand housing is displaying all the symptoms of a bull market. House sales have risen sharply, and now stand around their long term average. The time taken to sell has shortened. The number of houses listed on the market has fallen. All indicators are typical of a market upturn, and point to a significant price increase.
Let’s look at the facts behind these statements:
1. Property sales have risen – true. The sales for September were 6,464 this was 44% up on September 2008, just 15% up on September 2007, but was down 25% on September 2006. On an annualised basis the current 12 months reflect sales of 65,575 – the average 12 month moving average sale during the period 2002 to 2008 was 99,277. Therefore sales are picking up but stand well below long term average.
2. The long term average sale is best judged by the % of sales per year of the total inventory of all houses. There are currently around 1.53 million dwellings in NZ, over the past 10 years this inventory has risen by 180,000 new homes. The chart below shows the monthy sales of property tracked as a % of all dwellings in that month (Census NZ data).
This clearly shows that current sales are well short of long term average.
3. The number of houses listed on the market has fallen – not true. The latest NZ Property Report published 11 days ago show that new listings are rising. However not quite as fast as expected by seasonal rise but still rising. What is more important and is as shown below the available inventory of property on the market is not falling.
Inventory as measured in the number of weeks of available sales is a true measure as reflective of sales volumes and whilst no where near the heady peaks of 12 months ago the current level of 34.4 weeks is up from the lows of 6 months ago. The trend line is actually rising.
I think the important matter here is not the prediction of future prices; as many different people will have many different interpretations and predictions as the blog comments on interest.co.nz will clearly show. The important thing is exposing the primary data in an open and transparent manner so people can make their own judgement as to where they think prices will go.
Can you advise how many properties are being addded to realestate.co.nz each day/week over Oct/Nov and how does that compare with last year.
Of most interest would be the first 14 days of November.
Russell
The full details for October are provided in the NZ Property Report for October as published on this blog on 1st November.
A quick check reveals that for the first 13 days of November we have seen 6,525 new residential listings come onto the site – the same period in 2008 saw 6,059 – an 8% increase.
A key point is that November 2008 was the point at which the NZ property market turned as sales had been so low that listings started to dry up – November is normally one of the two highest months and usually higher than October – not so last year.
By comparison the same figure of new listings in the first 13 days of November 2007 was 7,615.
The property market is not one homogenous market. In some areas, Westpac’s predictions may come true but are less likely to be true for other areas. That’s an issue when we look at averages.
Hi Alistair,
It’s been a while.
Of course there are vested interests. Those who have reason to positively promote a bullish housing market.
Among those are banks and real estate agents.
In this case, I must commend you and your article for its lack of bias.
By the way, if you haven’t, I thoroughly recommend Peter Schiff’s book “Crash Proof”. There is a new 2009 version out.
It’s amazingly insightful with respect to economics, and housing markets.
Steve
Steve
Good to have your comments – has been a while and thanks for those words.
It has always been the intent of the blog to offer an impartial perspective; for me that has maybe taken a time to establish and build confidence in establishing.
I must look out for this book – Peter Schiff is certainly highly referenced in his prediction of the great recession.
Thanks for taking on the banks in particular Westpac – they seem to come out with this sort of sensational headline everytime they want some media coverage.
In Hamilton the market has slowed to an 8 month low of 214 sales in October down from the best month of the year April with 259 for more detail on Hamilton see my http://www.unconditional.co.nz/greigs/2009/11/16/hamilton-housing-market-crashes-in-october/blog
As I have noted over recent months, and am happy to admit your comments seem to lend a neutral basis to the overall “Press” generated housing market sentiment. I am curious though about your statement referencing number of houses on the market falling…and in yr words ….”wrong”….I forward the fact that even yr own property report suggests otherwise regarding falling numbers as evidenced by your Property report associated graphics. Why the difference? A double standard?
Mainlander
I think I can see the question you raise, however I would like to clarify and reinforce there is not a double standard.
The Westpac report states that the number of houses listed on the market has fallen. I say no. I base this on the facts in the NZ Property Report for October which showed that the number of listings in October was higher than September – fact. In addition I make point to the fact that inventory as measured in equivalent weeks of sales rose in October.
For clarification I did make the comment in that report that on a comparable basis this year has seen a lower seasonal lift in new listings – this I would judge to indicate that the market is not in a boom – further strengthening the argument I have to the data set used to justify the Westpac report claims.
I hope that provides clarity around the message of this blog post and the report.