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Archive for the ‘Buying / Selling a home’ Category

2

Auckland property prices – not quite the increase portrayed in the media

Posted on: April 19th, 2010 | Filed in Buying / Selling a home, Featured, Media commmentary, REINZ Monthly data

Auckland Property prices in March 2010 Realestate.co.nz

There was a sense of deja vu about the article in the NZ Herald over the weekend.

“Booming Auckland house sales jump $709 each day”

Are we back in the boom years of 2002 or 2007 when headlines of “Homeowners riding a $500-a-day rocket” or “Auckland homes rise $540 a day” were published?

Whilst the specific statistics quoted in the article were accurate (median price increase), I would judge that the inference that property is appreciating by $709 per day is not valid.

The headline used as its source the REINZ monthly median price data for the Auckland region which showed that between February and March the median price had risen by $22,000 from the February figure of $453,500 to the March figure of $475,500.

These median figures are accurate. Taking the total data set of 2,187 properties sold in March 2010 – the midpoint of that range ranked by price will be a single house sold for $475,500. Equally taking the total data set of 1,578 properties sold in February 2010 – the midpoint of that range ranked by price will be a single house sold for $453,500. However it is not accurate to state that by inference that all properties in Auckland have risen in the month, nor that in fact property prices on average have risen by $709 each day.

The issue with these statistics is that median price is a volatile measure and is susceptible to changes in the composition of property being sold. If there are more properties being sold at the higher price end of the market, then median prices will be reported as higher. That is likely to be the case at this time. The chart below sourced from the regional property sales by price band provided as a subscription service from REINZ – Residential Housing Facts displays the make up of all sales in each of the two months set out by price range along the horizontal axis. The red line represents the percentage of sales in February by price range, with March in blue.

REINZ Auckland price range analysis Feb March 2010

The very clear picture shown by the chart is that for property sales below the median in March represented less than for February, whilst sales above the median in March represented more of the sales. This supports the view that the composition of sales changed significantly and therefore impacted the median price.

Let’s look for a moment at the broader picture for the whole of NZ. For the whole of NZ the composition of sales by price segment is very telling. In the month of March total sales increased by 22% from the February figure of 5,029 to 6,161. In the lower price segment of properties sold at prices below $400,000 sales volumes increased by just 17%; properties sold at prices between $400k and $600k, sales increased by 25% – slightly ahead of the total. However for properties sold at prices between $600k and $1m sales increased 38% and the sales of properties over $1m increased by 55%. This clearly shows a skew towards higher priced properties selling in March.

The Real Estate Institute (REINZ) does produces a more accurate measure of property prices published in its monthly report. In collaboration with the Reserve Bank REINZ publishes the monthly Stratified House price index specifically to minimise the impact that changes in the composition of sales has on price.

The Stratified price of Auckland property sold in March was $479,438 – this was down very slightly on the February figure of $479,975. The chart below tracks the stratified sales price in Auckland over the past 5 years.

Auckland stratified house price March 2010 Realestate.co.nz

As the chart shows the fact is that property prices are not booming. Auckland property prices peaked in July 2007 at $510,197, it then fell to a low point some 16 months later of $435,700, a total fall of just under 15%; subsequently prices have crept back up towards the peak but currently are still some 6% below that peak.

The chart of stratified prices for the whole of NZ as detailed below equally show that despite the peak of property prices being reached some 28 months ago, nationally prices as measured by the stratified price are still some 3.3% below that peak.

New Zealand stratified house price March 2010 - Realestate.co.nz

5

Open homes – Realtors in the US go on the offensive to showcase property

Posted on: April 11th, 2010 | Filed in Buying / Selling a home, International

Nationwide_OPen_HouseThis weekend around the 50 states of the US houses will be decked out with blue bunting and balloons. It is not a new public holiday -rather it is a concerted initiative by the National Association of Realtors to try and kick off the spring season of property buying with a bang!

The US property market has been in the doldrums for over 3 years as it has suffered the largest fall in prices since the Great Depression. The Case Shiller Index of home prices (the most respected source of property prices measured across 20 major cities) is still 30% down on the peak of the market back in May 2006. During this time the number of properties being sold has slumped with a consequential loss of confidence in real estate and a sobering rise in foreclosures (mortgagee sales). Estimates vary but a common held view is that up to 40% of all mortgage holders are technically under water – their property is worth less than the value of their homes.

The chart below tracks the Case Shiller index showing year on year growth or decline. Whilst the current year on year is effectively zero, the key fact is that for 3 years the index has been constant year on year decline.

Case Shiller Home Price Index January 2010

With this as a backdrop the US government recognised, that just as in most western countries where residential property is a key asset for most households and consumer confidence is tied to perceptions of wealth something needed to be done to stimulate the property market. The US government solution was to allocate some of the massive US$787 billion fiscal stimulus package to create a US$8,000 tax credit for first time home buyers and up to US$6,500 for move-up buyers. The original deadline for this initiative was scheduled to expire on the 30th Nov last year but was extended to the 30th April 2010.

So this initiative this weekend for local real estate companies to implement a carnival-like experience across the country is timed to try and peak interest and purchase decision before this stimulus incentive runs out at the end of the month (with no likelihood of another extension).

The question as to the value of this exercise could be hotly debated – can a concerted effort on this scale by an organisation as powerful as the National Association of Realtors (NAR) and the associated local branches through local offices and agents drive demand? What is not to be ignored is the might of the NAR, it is the largest trade organisation in the US, with over 1.2 million members. It’s influence was strong enough to achieve the extension of this home buyer tax credit, so it’s marketing muscle has the ability to affect consumer activity and stimulate interest in property buying.

It would be an interesting question to know here in NZ if such an initiative (a massive open home weekend event – not a first time home buyer tax credit) could be coordinated and implemented and if it would have a bearing on the property market?

4

Could this be the start of a resurgent property market?

Posted on: April 7th, 2010 | Filed in Buying / Selling a home, Featured

March 2010 property sales from Barfoot & ThompsonBarfoot & Thompson, the leading real estate company in Auckland and Northland released their sales figures today for March. A total of 927 properties were sold in the month of March. This figure is encouraging and raises hope for the property market across the country as Barfoot & Thompson release their sales figures well ahead of the Real Estate Institute data which is due on the 16th April.

The figure of 927 for March compares with a more subdued figure of 626 in February, but is in line with March 2009 when 924 properties were sold. That month of March 2009 was the turning point in the market then with an increase in sales which ran for 7 months until the Spring of last year.

The chart below presents the monthly sales figures on a seasonally adjusted basis – this better demonstrates true growth stripping out the seasonal factor of the market. The month of March is the biggest selling month of the year accounting historically for 9.8% of all annual sales.

Barfoot & Thompson seasonally adjusted sales March 2010

The sales for March at a seasonally adjusted level of 789 is very strong – 34% up on the February seasonally adjusted figure of just 588.

In terms of average sale price, the March figure of $545,156 was up over $20,000 on the February figure and $53,000 on March last year. The chart below tracks the monthly average sale price over the past 4 years highlighting the more than 10% year-on-year increase.

Barfoot & Thompson average sales price to March 2010

Given this month’s increase in sales activity and given the scale of the business of Barfoot & Thompson (based on the past 12 months Barfoot & Thompson represent 13.7% of national sales) it is possible to make an educated extrapolation of the total sales for March.

Using seasonally adjusted monthly sales for February and March 2010 and applying the percentage month-on-month increase seen by Barfoot & Thompson of 34%; this would extrapolate to a March total sales for the whole of NZ of around 7,000. This level of sales would start to bring the market back towards a more normal market for property.

One caveat to this extrapolation is the likelihood that within the performance of the Barfoot & Thompson sales figures is potentially a higher level of activity in metropolitan regions of the country as expressed in the March NZ Property Report. We shall have to wait for the final sales numbers from REINZ in two weeks time.

9

What is normal in the housing market?

Posted on: April 5th, 2010 | Filed in Buying / Selling a home, REINZ Monthly data

iStock_000001558465SmallBernard Hickey wrote an interesting piece in the NZ Herald entitled “Abnormal the new norm“.

In it, he describes what he sees as a new normal in the property market borne of more stringent controls on banks by the Reserve Bank policy requiring more stable and longer-term sources of funding, with less reliance on “cheap hot money from overseas”.  A consequence of this he believes will be a continued shift from fixed rate mortgages to variable rate mortgages. Currently 30% of mortgages are on variable rates – a trebling over the past 3 years. This shift will likely see a closer alignment of base rates to mortgage costs and therefore the impact on the property market.

Whilst I agree with the principle of what Bernard states in his piece, that we are unlikely to see what many had considered to be normal level of market activity in terms of price increases and strong sales as was witnessed over the period of 2005 to 2008; the important question is though, what is going to be this new true normal in the property market.

To assess this requires a view of the historical perspective on the NZ property market. Fortunately the data of the market is comprehensive going back to 1992 through data published by the Real Estate Institute. The data covers both sales volumes and median price. Whilst historical data of sales can provide insight to the future, when it comes to pricing as we have seen in the past 18 months – historical pricing trends are no forecaster of future trends, and it is a brave person to state whether property prices are going to rise or fall.

Looking for trends in historical sales data, the chart below tracks the historical property sales in NZ since 1992 measured as a percentage of all residential property in the market at the time. The key here is that in 1992 when the data began there were 1.18 million residential properties and annual sales at that time were 63,270. Over the course of the past 18 years the number of residential properties has grown to 1.55 million – an extra 370,000 properties.

NZ property market percentage of all homes sold each month realestate.co.nz

However as the chart shows the percentage of all properties sold each month has varied greatly – peaking at over 0.75% in 2004 before falling to the recent lows of the past 2 years, well below long term average of 0.52% and barely half the level of 2004.

The key consideration here is what is likely to be the new norm for the property market. Bearing in mind the comments of Bernard Hickey the period of the mid 2000′s should be seen as abnormal. Interestingly though is the fact is that in the period of 2005 to 2008 the average sales as a percentage of all properties was 0.495% – below long term averages. In fact if you might consider the 1990′s fairly normal – during that period the average monthly sales represented 0.52% of all properties.

Based on these statistics it might be safe to call a normal market around 0.5% of all properties selling in a month. That ratio based on the current number of residential properties at 1.55 million would mean an average monthly sale of 7,727.

The last time the monthly sales of residential property in NZ exceeded this level of 7,727 was November 2007 – 27 months ago. The most recent 12 months of sales total just 69,390 properties an average of 0.37% of all properties per month.

The fact is that based on the current state of the property market sales would need to rise by 34% to just reach what we might call normal. To help provide some guide to recent sales levels as to how close to the new “normal” this market is the table below can be thought of as a ready reckoner. If 2010 was a new normal year (ie 0.5% sales per month) then these are the monthly sales we should be expecting to see.

NZ property market - a new normal, how sales should look

Clearly this year,  just two months in, is showing we are no where near a normal sales level – in fact with only 8,695 sales in the first two months this market is 43% behind the mark. The latest sales for March will be published on the 16th April and it will be interesting to see how they look as compared to a normal market.

2

Clear decline seen in sales and listings of mortgagee properties

Posted on: March 28th, 2010 | Filed in Buying / Selling a home, Featured

NZ mortgagee properties The latest data on mortgagee properties being repossessed by lenders and marketed for sale indicates that the trend is on the way down. Whilst far from returning to normal levels the extent of mortgagee properties on the market has declined over the first quarter of 2010.

As seen from the chart below the peak of mortgagee listings on the market was at the end of 2008, just at the peak of the global recession. Through 2009 a patchy decline was observed with a significant clearance through the year end of 2009. Since the start of this year the market has seen a new selection of mortgagee properties come onto the market, however this has not been to the extend of the levels seen through 2009. As at this time there are some 309 mortgagee properties comprising homes and lifestyle properties on the market.

mortgagee_listings_Mar_2010

These statistics of listings are also reflected in the latest data of mortgagee sales released by Terralink International. The data compiled in the monthly report cover sales of properties of all types that have been sold on behalf of the lender as a statutory mortgagee sale, they can and do include non residential properties.

Sales for January totaled 196 down from the December total of 252, but still up 30% on the total sales in January 2009. However when adjusted for seasonality the sales for January reflect a slow decline which began in October 2009 following the peak of seasonally adjusted sales in September of 336 – the seasonally adjusted sales for January 2010 was 232 as highlighted in the chart below.

NZ mortgagee sales - seasonally adjusted

The final measure of mortgagee activity can be seen by examining the extent of searches undertaken on realestate.co.nz for mortgagee properties. Mortgagee properties are not a defined category of listings and therefore are found within the 120,000 listings on the site through the keyword searching. The chart below shows the level of keyword searches for such terms of “mortgagee”, “mortgagee auction”, and “mortgagee sale” on a weekly basis since the start of 2008. Very clearly the level of activity were considerably more active back in 2009, with the past 6 months showing a very stable level of around 600 to 700 searches a week.

NZ mortgagee listings and keyword searches Mar 2010

10

Are property prices going to rise or fall?

Posted on: March 24th, 2010 | Filed in Buying / Selling a home, Featured, Money Matters

Question marks croppedThis is the question…..are property prices going to rise or fall?

It is the question that everyone seems to want to know – and rightly so, given the extent of investment savings NZ’ers have tied up in real estate. I am not going to make any judgment here about the rights and wrongs of that. Nor am I going to make any predictions as to where property prices are going in the next week, month or year.

If you are about to click the back browser button – thinking that I have mislead you with this title, then please wait a moment to hear the rationale.

I heard a quote a year or so ago from a credible and respected economist. He stated that there were many expectations put on him to make predictions and foreshadow future trends with all kinds of economic indicators. At the end of the day the one he was most reluctant to make a prediction on though was the property market and especially the future price of houses. I took away from that quote a very clear view that if an economist who has (a) far greater access to a far greater set of data than I do, and (b) is far better positioned to make such extrapolations due to focus and extensive financial career experience is not prepared to make such predictions – then I am certainly not going to.

However to provide some helpful insight to current property owners and aspiring property buyers and investors, I would recommend a read of this great article from the New York Times of last week titled “Great time to buy (famous last words)“. It does offer as would be expected an economists view of the 3 macroeconomic drivers of property prices: Affordability (median price to median income); Alternative options (rent vs buy) and Asset Appreciation (Asset value of housing stock to GDP). Interestingly a recent guest article on Interest.co.nz covered these metrics for NZ by Philip O’Connor who is a Senior Lecturer in finance at the University of Auckland’s Department of Accounting and Finance.

Whilst the article from the NY Times speaks to the US property market – the relevancy of a comment within it from Glen Kelman, the CEO of online real estate company Redfin is the blinding flash of inspiration in his statement:

“Instead of betting on home prices, you make a bet on whether money will become cheaper or more expensive, allowing you to buy more or less house”.

I have often read and from personal experience believed in the principle of buying a family home based on personal affordability. The key question is, or should be: “based on my current earnings and future prospects, can I afford the mortgage repayments assuming future interest rates?” This is the question that is far more important than the question of what will happen to house prices in the next week, month or year.

For the majority of property buyers in NZ the decision is a major commitment, one they will likely make only a few times in their lives. Given the average occupancy of a home owner in any one property is 7 years, the most important question is personal affordability. A repayment mortgage is a great savings vehicle and as long as property prices keep close to long term inflation then at the end of the period of ownership most people will benefit in owning more of their home as an asset than they owe their lender. To try and play the market in terms of future property pricing is the same as trying to play the stock market on a daily basis.

As to the question of future interest rates. I am not going to offer any personal opinion, again there are more qualified people to offer advice – Interest.co.nz provides a rich source of data and comment and John Bolton at Squirrel has recently written a view on 2010 mortgage rates on his blog

28

Selling your home? – auction marketing reaches new high

Posted on: March 21st, 2010 | Filed in Buying / Selling a home, Media commmentary, Online marketing

iStock_000009029079XSmallWith the level of homes on the market reaching new highs the extent of auctions is also reaching new highs as reported in the Sunday Star Times today.

In February of the 15,129 new properties coming onto the market, 1,904 of them were being marketed as auctions. That is 1 in every 8 of these new listings. The total is an all time high – surpassing the 1,410 properties marketed as auctions in August last year.

The chart below tracks the percentage of all new properties listed on Realesatate.co.nz in the past 3 years that are being marketed as auctions. The data is adjusted in this chart to exclude mortgagee properties (which predominantly are marketed as auctions as the lender usually is more keen on auctions).

Auctions of new listings

The February total represents 12.6% of all new listings. The chart does clearly show the fact that compared to both 2007 and 2008 auctions have become far more popular as a method of marketing properties. As a point of note the percentage of properties listed in August last year marketed as auctions was actually slightly higher than the February figure at 13.2%.

0

Taking the property pulse of the market – March 2010

Posted on: March 19th, 2010 | Filed in Buying / Selling a home, Property Pulse - Regional Market Report, REINZ Monthly data

Property Pulse Realestate.co.nzYesterday was a chance to provide an update of the property market on the new regular slot on TV3 Business Breakfast. For those readers who were not up at 6.40am you can view the segment here on the TV3 website.

The summary covered the latest Real Estate Institute sales figures for January as well as latest data on website listings.

Sales

The sales in February totaled 5,029. Whilst up from the 3,666 properties sold in January, the seasonally adjusted sales were 4% down on February 2009 – itself down 18% from February 2008. The most recent 3 month period (Dec / Jan / Feb) totaled 13,652, this compared to 13,236 in the same period in 2008/9. At the peak of the market back in 2003/4 the total was more than double the current level at 26,910.

The chart below shows the period from 1993 to 2010 and tracks the sales for the same 3 month period each year of December, January and February.

NZ Property sales (Dec / Jan / Feb) 1992 to 2010

Sales Price

The Stratified median sales price for February as reported by the Real Estate Institute in association with the Reserve Bank rallied slightly in February from a slide which began in November last year. The figure of $362,150 as the chart below shows is still 4.9% below the peak of the market some 27 months ago. The resurgence of houses prices seen through 2009 when the price came within 2% of the peak has certainly lost steam.

Stratified price REINZ Feb 2010

Listings

The most recent NZ Property Report for February highlighted the rise in the inventory of unsold houses. A total over 15,000 new listings for houses for sale came onto the market in February – a 47% increase on the number in January. This new stocking adding to the existing stock took the total inventory to over 48 weeks up from 40 weeks in January.

Taking the latest pulse of the market looking at the flow of new listings coming onto the market – the fact is that March is going to be another month of significant activity with in all likelihood that another 15,000 listings hitting the market. The key question which will not be answered until the 16th April will be the level of sales of properties in March as recorded by the Real Estate Institute.

The next NZ Property Report for the month of March will be published on Thursday the 1st April (no April fools jokes OK!). It will actually mark the first anniversary of this report. All of the prior months reports are archived on the Unconditional website under NZ Property Report.

3

Grocery shopping and real estate – a match made in heaven?

Posted on: March 11th, 2010 | Filed in Buying / Selling a home, Featured, International, Real Estate Industry

Grocery aisle - real estate and grocery - a match made in heaven?This week has seen the official launch of a new real estate service in the UK, bringing the British public a real estate service packaged up with their weekly groceries.

Tesco logoTesco, the largest UK grocery chain has partnered with Spicerhaart, one of the UK’s largest real estate chains to establish iSold – what they describe as “The UK’s newest estate agency, iSold has taken the very best in estate agency and made it even better”.

The service offered by iSold appears from the website analysis to be a 3 tiered full service comprising an up front fee of £299 (NZ$636) for valuation and marketing including extensive online profile of the property across the main websites. A completion fee of £700 (NZ$1,500) is payable on sale. This basic package is complemented by a Premium package at a total cost of £1,119 (NZ$2,380) and Premium Plus at £1,299 (NZ$2,764) – no clear details of the extent of the premium services are yet available.

It is clear from the current site that a lot of focus is placed on the valuation and the right pricing to help you sell. The site states that iSold has their own locally-based valuation experts. The initial launch has been focused in Bristol before this week rolling out around a number of regional centers across the country.

This activity comes close on the heals of the move by RE/MAX real estate brokerage in New England (US) to open 17 micro real estate offices within a chain of grocery stores.

The question is – Is this likely to be a future trend for the real estate industry here in NZ as more and more real estate offices question their high street presence as more of the marketing moves online?

There is quiet a bit of precedent already established in this area of grocery chain diversification. It is worth reflecting on this to provide some perspective to this concept. Here in NZ we had an ambitious move by Foodstuffs in 2003 to establish a banking service (SuperBank) in their New World stores. That move which was itself modeled on the Tesco banking service in the UK ultimately failed to capture sufficient customers before the business folded in 2006 with all the customers being transferred to Kiwibank.

The fact is grocery stores are very high traffic outlets. They are very strong retail brands and they are always looking for higher margin offerings to supplement the high volume / low margin grocery business. So there is a possibility for such a move in the future. It is also interesting to compare this UK iSold model with “The Joneses” business model launched back in 2007 with a full service agency based on a fixed fee service instead of traditional commissions.

15

Is summer really the best time to sell a property?

Posted on: March 1st, 2010 | Filed in Buying / Selling a home, Website searching

Ask an assembled group of property owners when is the best time of year to buy or sell property. You are likely to get the answer that summer is the best time. However for whilst toy manufacturers and retailers know that over 50% of their business occurs in the last 2 months of the year, real estate agents are actually pretty busy selling property year round.

The fact is that property sales are actually less susceptible to seasonality than some may think. In the chart below the calendar year is laid out showing the peaks and troughs of sales – this data is showing seasonality; based on over 15 years of data from the Real Estate Institute.

NZ Property sales based on seasonality Realestate.co.nz

The analysis has shown that month-on-month variation in property sales tends to fluctuate by far less than people perceive. March is the most active month of the year, with January being the least active. Taking a typical year and a total sales of say 8,000 in March. This would equate to 258 sales per day; based on the same market the figure for  January would be less, but still a respectable 190 sales per day. As for the winter months – they would average around 216 sales per day.

Having said that sales are not that seasonal it may come as some surprise to learn that there are some hidden “windows” of opportunity during the year to list a home for sale! In fact when selling a property, the best time could be in the middle of winter, a time traditionally thought of as the worst time of the year for the property market!

The chart below tracks the seasonality of listing volumes (new property coming onto the market) and also number of people viewing property online. These important new sets of data have only recently been available as a function of the dominance of the web in real estate researching.

NZ property seasonality - peaks and troughs for listing and researching

The activity of researching and viewing property online (in red above) hardly varies by much through out the year (with the single exceptions of the ever-present distractions of Christmas and the fast approaching summer holidays). For reference  website traffic is measured across a basket of leading real estate websites including Realestate.co.nz.

The one surprising fact though highlighted from the analysis is the seasonality of new listings coming onto the market (shown in blue above). In this regard the behaviour of sellers is completely out of line with buyer activity.

The majority of new property listings tend to flood onto the market in February & March and again in October & November. Such is the surge that close to 40% of all new listings in a year, pour onto the market in just these 4 months in the expectation that this is when buyers are most active. Equally in contrast, those winter months of June, July and August show the lowest level of new listings coming onto the market falling to barely 20% of the annual total of all new listings hitting the market during the 3 months of winter.

So what does this analysis tell us as property owners and buyers, and what should you do to take advantage of this analysis?

Well thinking about it, there is an opportunity here for astute property sellers. For whilst the temptation is to list either in the spring or summer, grabbing the winter season could give your property greater exposure at a time when fewer listings are out in the market to compete with, and yet at the same time buyer interest does not decline to the same extent.

So maybe the best advice is be brave and be different, and just maybe that sale may come sooner than you think giving you the opportunity to be buying just as all the new spring season listings hit the market.

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