The reports of recent weeks and months would have us believing that the property crash of 2008/9 was well behind us and prices are now powering up to new highs.
Some of the data would support this – however as is well documented, you can always find data to support any argument. When it comes to house prices there is too much at stake to allow headlines to drive such important decision making activity as house buying.
In NZ as has been discussed and presented on this blog in the past there are a number of house price statistics which derive their data from a variety of sources – some more timely than others and some more robust than others. What there is a need for is a trusted and definitive measure of house price – in the USA the Standard & Poor’s Case Shiller House Price Index is the trusted gold standard.
The NZ equivalent is the Stratified House Price Index. This index was established in August utilising the data from the Real Estate Institute’s members (licensed real estate agents) of unconditional property sales. This raw data is then computed using the stratified model built by the Reserve Bank of NZ. The abstract of the methodology is summarised below:
Widely used measures of growth in mean or median housing prices will reflect changes in the composition of dwellings sold as well as changes in demand and supply conditions. Using a suburb-level dataset from the Real Estate Institute of New Zealand we use stratification techniques to adjust for compositional change and derive a timely and robust measure of housing prices for New Zealand. Results suggest this stratified measure produces estimates of housing price inflation that accord closely with the accurate but less timely figures obtained from the QV Quarterly House Price Index.
Simply put the use of medians and averages for house prices are always influenced by sales volume and sales composition (more or less high price / low price properties). The chart below provides a visual representation of the stratified median house price by month since Jan 2000 as compared to the straight median price for the same month. Both calculations are derived from identical data in each month.
The divergence of the two lines from 2002, which showed the greatest gap in 2007 is likely to be the result of the composition of property sales over the period. The Stratified mean reflecting a higher price as a function of the compositional change in the NZ housing stock over the period – more higher priced properties.
Current data
The latest reported statistics of Stratified median price for November from the Real Estate Institute is broken down by key cities. The data is presented in the following charts which portray the detail of the past 5 years and highlight the market peak of prices and the market decline together with recent resurgence – they individually and collectively seek to answer the question: “are we there yet in property price recovery?”
National house price
The current price of $369,825 shows a recovery from the low point of January this year when the price had fallen to $337,400. That initial fall of 11.4% from the market peak of November 2007 when the market reached $380,900. The current price is still 2.9% below the peak of the market – No, we have as yet not recovered!
Auckland house price
The current price of $487,650 shows a recovery from the low point of exactly 12 months ago when the price had fallen to $337,400. That initial fall of 14.6% from the market peak of July 2007 when the market reached $510,197. The current price is still 4.4% below the peak of the market – No, we have as yet not recovered!
Wellington house price
The current price of $414,140 shows a recovery from the low point of September last year when the price had fallen to $372,075. That initial fall of 12.2% from the market peak of September 2007 when the market reached $423,955. The current price is actually just below the peak of 2 years ago, however the figure for October ($424,615) set a new peak – Yes, we have recovered!
Christchurch house price
The current price of $345,925 shows a recovery from the low point of January this year when the price had fallen to $309,400. That initial fall of 14.6% from the market peak of October 2007 when the market reached $362,475. The current price is still 4.6% below the peak of the market – No, we have as yet not recovered!
Other North Island house price
The current price of $300,675 shows a recovery from the low point of January this year when the price had fallen to $283,600. That initial fall of 12.0% from the market peak of November 2007 when the market reached $322,305. The current price is still 6.7% below the peak of the market – No, we have as yet not recovered!
Other South Island house price
The current price of $276,100 shows a recovery from the low point of January this year when the price had fallen to $254,010. That initial fall of 13.1% from the market peak of February 2008 when the market reached $292,425. The current price is still 5.6% below the peak of the market – No, we have as yet not recovered!
This opinion piece is written primarily to address a question that I seem to be hearing more and more from within the real estate industry.