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Auckland’s property market – just recovering or on the move?

Posted on: April 4th, 2009 | Filed in Buying / Selling a home, Media commmentary, Real Estate Industry

Clearly the headline makes the claim that the Auckland property market is “on the move” supported by the 46.2% growth in year on year sales as reported by Barfoot & Thompson yesterday for the month of March. At the level of 924 sales for the month this does represent a very strong level of activity in the market, but as the article goes on to detail with a balance of commentators these numbers are unlikely to be the start of a significant resurgence.

The figures from Barfoot & Thompson when seen in context in the 2 graphs below show a picture of a market finding some life – not as yet surging on the move. The 3 month moving average of sales volumes certainly show how consistently low activity has been in the market over the past 12 months with hardly any signs of seasonal fluctuations – let alone any signs of growth, set against this the March data has pulled the 3 months to March up considerably.

The pricing in the market though retains a downward track with a clear level being found at around the $500,000 whereas during 2007 the $550,000 level was proving to be the consistent level of price. The year-on-year slight pick up seen in February sales price has returned to a negative trend with a year-on-year fall of around 5%.

As the commentators rightly say the sales volumes are likely as a sign of latent suppressed activity on the part of the buyers and sellers being triggered by lower interest rates and the media not being so doom laden.

Another contributory observation I would make is the fact as highlighted in a blog post on Zoodle written in January titled “Property sales likely to pick up in 2009” . The total sales for residential property in 2008 at around 56,000 was at an all time low in both real and normal terms. The 2008 sales when viewed as a % of all dwellings represented just 3.7% whereas the average sales level as % of all dwellings over the past 20 years is 6.2%. This clearly showed that 2008 activity was frustrated by sellers and buyers who needed to move but were unable for a myriad of circumstances and what was needed was a catalyst which is what has fueled this recent activity – not the start of a new market resurgence. The fact is as we have seen in the first quarter of 2009 the level of sales volumes lifting off the bottom, and we are quite likely to see sales growth of potentially upwards of 20% this year as we might well head towards 70,000 sales across the country – that would still be well below the average sales % of all dwellings which currently equates to around 90,000 properties.

The fact is the that the uncertainties of employment, credit availability and economic wealth weigh heavy on the market and the consumer and in these circumstances the property market is more likley to be frequented by well informed, financially aware and stable buyers ready to meet what they judge is the market price.

Real estate – everyone has an opinion – have your say!

Posted on: March 31st, 2009 | Filed in Real Estate Industry

In running realestate.co.nz as the official website of the real estate industry, and in writing this blog I value the opportunity to engage with all readers on topics of interest in an impartial and unbiased manner.

To this end I would encourage you to participate in an online survey currently being undertaken on behalf of the Real Estate Institute Industry Training Organisation. The survey which is being managed by CBA Consulting is targeted to examine the attitudes and experiences of buyers and sellers as they have interfaced with real estate salespeople and real estate agencies (offices / companies).

This a great opportunity for a good cross section of the public reading this blog (and I would encourage others to shares this link so as to ensure a robust sample of respondents participate) to share their experiences and views as to the capabilities of real estate professionals.

The survey should only take you 5 minutes to complete and you can either complete it anonymously or if you would like the opportunity to be in the prize draw to win $300 of petrol vouchers then just provide your name and email – all questionnaires must be completed by Monday 6th April 2009.

All responses will be collated and analysed independently by CBA Consulting. No respondents will be identified during the analysis of this information.

To start the survey just click the link here or copy and paste this URL into your browser

http://www.surveymonkey.com/s.aspx?sm=86GNZjnMpP9hKj8TFmFRAA_3d_3d

Discussion: The housing crisis lies in lack of supply, not falling prices

Posted on: March 16th, 2009 | Filed in Media commmentary, Real Estate Industry

An article published today in the NZ Herald titled “Housing crisis lies in lack of supply, not falling prices“ is sure to provoke some healthy debate. The article by Charles Lowndes a professional real estate agent with over 30 years experience both here and abroad, provides a perspective of the outlook for the real estate market in the coming years. The limitation of the article in both print and online is the inability for comments to be made as to the support or rejection of the hypothesis, that is why this blog can provide such an environment for discussion.

The article is written by a real estate agent and this is bound to bring the predictable call of “self interested promotion of the market” – however I find this attitude surprising when one would usually tend to respect the views of a person who has dedicated their 30 year career to understanding their industry. Further commentators in the financial services industry never seem to be tarred with the same brush when they dissect their market – after all financial service companies earn commissions trading financial products

The article makes the proposition that the combination of strong immigration as a function of the global recession matched to the stalled market for the building of new homes will put pressure on the supply side of the market in NZ. Now there may not be a crisis of supply, but the reality of the market needs to be recognised.

The content of the article draws parallels with recent posts on this blog – earlier this month in the post “Emerging concern over supply of new homes as consents plummet” it was highlighted to the extent to which consents had fallen below the supply level required to meet market demand. NZ unlike the US market does not have a surplus of new homes which are unoccupied. The 80,000 homes for sale as listings on realestate.co.nz are in the majority occupied and are being sold so home owners can move on.

The post just last week “Examining facts on the state of the real estate market” spoke to the growing interest in the property market. Subsequent to this article and others written last week there has been those who have claimed that the market is not awakening, citing the year on year performance of February 2009 with 2008 (down 18%) and 2007 (down 44%). These figures are true however a perspective overlooked in all these analysis is the relative growth at this time of year. There is no doubt that due to concerns about unemployment and tighter credit from lenders the market in terms of property sales is at an all time low, but as the chart shows below the relative growth between January and February this year is far in excess of the seasonal trend.

Barfoot & Thompson sales data for February shows some modest thawing of the market

Posted on: March 5th, 2009 | Filed in Real Estate Industry

The February sales for Barfoot & Thompson as representative of a large portion of the Auckland market certainly seem to reinforce the view that there is life in the real estate market. Harking back to an analogy I used last year in a post which as ever with the benefit of hindsight was a little optimistic – not a buoyant resurgence by any means, more of a thawing of once frost-bitten fingers.

A total of 559 sales shows a 9% increase over January, however still 7% down on February last year – a time when clearly we were all seeing the signs of a fast slowing of sales volumes. As presented in the chart below the 3 month moving average sales volume (blue bars) shows a fairly flat level at 512 for the 3 months ending Feb ’09 although as shown by the red line the rate of decline in sales is slowing and projecting forward should see volumes start to show a year-on-year growth from March, especially as March is traditionally a strong sales month. Not a rampant market by any means, but a more liquid market where buyers are more active than we have seen for the majority of 2008.

Making assumptions based on the typical share that Barfoot & Thompson represents of the NZ market it could be that national sales figures due out later next week from the REINZ might well show a figure for February of close of 5,000 sales. That would be a good performance when compared to January which presented an all time low of just 3,706 sales. We have not seen a monthly sales volume breaking the 5,000 barrier since May 2008. All of these indicators could foretell the fact that in volume terms we have found the bottom of the market.

As to property prices, well the commentary from Barfoot & Thompson says it all in the detail – the high end properties had a good month with 53.7% of the sales over $500,000 and 30 sales over $1m as compared to just 15 in January. The key issue is that using an average selling price as an indicator on such low sales volumes does naturally lead to the potential of an average price out of line with current trends.

The graph below illustrates this well in that the red line which shows the tracking of year on year price from Barfoot & Thompson data clearly can be interpreted as liken to having hit a rock in the road and veered off its normal trajectory.

Emerging concern over supply of new homes as consents plummet

Posted on: March 2nd, 2009 | Filed in Architecture & Construction, Property Investing, Real Estate Industry

The economic slowdown is firmly applying the brakes to the broad property market with the latest stats of building consents mirroring the record lows experienced in the real estate market.

The January stats show just 812 consented dwellings – the lowest since record began 34 years ago, with real estate sales in January at 3,706 the lowest since the early 90’s.

Whilst the median price for property is declining it is interesting to see that the average price of residential construction is actually increasing. Over the 9 month period from May 2008 to January 2009 the average value of residential consents rose from $310,000 to $393,000. Seen on this graph below the average value of consented residential construction on a 3 month moving average (red line) has now intersected with the average sales price of residential property again measured on a 3 month moving average basis (blue line).

This intersection is the first since early 2002 and highlights a couple of interesting trends.

The very low level of new consents contain virtually no apartment developments so prevalent through the past decade which held consent values down.
The market for new builds is maintained through more top end custom designed properties which is spiking the average, albeit from a low base of number of consents.

A consequence of this as highlight in the NBR is the very real possibility that such a drastic cut in new builds especially at the bottom end of the market generally serviced by group home builders could lead to a very real shortage of property with consequential impact on the supply side of the market.

And just before the howls begin from those that think we don’t need any more houses as the plane queue up to take kiwi’s to Australia it is worth reviewing the latest report from Statistics NZ which shows that despite the net record exodus to Australia of 35,400 in the 12 months to January 2009, the overall net migration was positive to the tune of 4,500 in the past year.

Putting house price movements into perspective – global / national / local

Posted on: February 21st, 2009 | Filed in International, Real Estate Industry

There is a well know phrase in real estate – “it is all about the local market”. This alludes to the fact that unlike a globally traded commodity such as crude oil, skimmed milk powder or computer chips, property is not mobile, it is not homogeneous and is certainly not a consumable item.

These fact needs to be borne in mind when reading the headline numbers of price movements, for what may be true for national median or average price across NZ may not be true for the region you live in, the city your live in or the street you live in. Within this aggregation of statistics is likely to be large variations of price movements generally above and below the average.

This was brought home to me this week by the map below which comes from Zillow – a specialist real estate website in the US which as well as featuring properties for sale also tracks house values. Very effectively the map visually represents the picture of property price movements across the USA. The headline figure for property price falls in the US is eye-popping, the latest Zillow home value index shows in the last quarter of 2008 year on year values fell 11.6% which means that a collective US$1.4 trillion of value in houses was lost in the last quarter of 2008 alone; and a total of US$3.3 trillion was lost over the whole year.

However the map very clearly shows that you cannot see the US as one market – it is a country of 303 million people creating averages over such a massive and diverse data set is bound to lead to generalisations that luckily this map destroys.

Clearly the US real estate market has problems, but they are mainly regional problems – most conspicously Florida, California, Nevada and Arizona – these are big populations areas. California alone has a population of 34 million. These areas are where hyper-speculative new builds took place and subprime loans funded the expansion and this is where the pain of 20%+ property price falls are occuring. Other areas of the US are not seeing double digit falls, some are even seeing steady prices. The point being that real estate stats need to be seen in perspective to the market – local markets.

Is there a new way to market property for sale?

Posted on: January 21st, 2009 | Filed in Online marketing, Real Estate Industry

A Christchurch real estate agent is reported to have been formally notified by Internal Affairs that a proposed online auction was illegal under the Gambling Act 2003. The agent was endeavouring to sell the property through what they considered was “a new sales method they hoped would catch on“.

Clearly media coverage attracts attention to the idea or concept of raffling a property – not in itself a new concept internationally, however the question is naturally asked as to if there is a really new means of selling property as stated by the agent in question.

The sale of a property as with any major financial transaction needs to be seen in the context of a seriously considered purchase with appropriate levels of due diligence undertaken utilising appropriate research on the property and the local market as well as relevant legal issues.

Whilst the current state of the market has been and continues to be challenging for sellers and their agents, there is no silver bullet which will suddenly and miraculously stimulate this property market. A raffle or lottery for a property is first and foremost a lottery with the prize being the house, this concept has been undertaken a number of times legally in NZ by the NZ Lotteries.

The way forward for the real estate market is to utilise appropriate marketing principles to attract the appropriate target group of prospective potential buyers. These principles seen as the 3 P’s -the right product (the home presented in the best manner), the right promotion (advertising in target media – online and offline) and the right price. In today’s market probably the most important is the price, pricing correctly to the market level to attract the right group of prospective potential buyers is critical with so many properties for sale competing for attention.

A higher degree of certainty appears to be creeping into the property market

Posted on: January 7th, 2009 | Filed in Media commmentary, Money Matters, Real Estate Industry

istock_000006631415xsmall Media speculation of the prognosis for this year’s property market has in my view started with a very level headed perspective – and I thank Anne Gibson of the NZ Herald for that.

For whilst the headline may be designed to capture the attention “House prices – how low will they fall?” – the substance of the contributors comments show a higher degree of alignment and with that I would judge comes a degree of certainty and stability – something that was significantly lacking in 2008.

The key comment from Tony Alexander (BNZ) “Although sales remain very weak they may almost be at their cyclical low and some improvement is likely before the middle of 2009” reflects well the sales statistics which will see the final number for 2008 at around 56,000. This is an all-time low and likely-as-not will see an improvement in 2009 mainly as a function of the fact that there is always a segment of the market that has a need to move house, rather than a simple “want”.

On property prices whist there is no complete consensus, the trend expressed by all commentators is for a fall in prices in 2009 – that group includes the Real Estate Institute. Whilst extreme views will always exist the main body of opinion expects to see prices down in percentage terms by single figures rather than double digit falls.

It is interesting to apply the percentages to the median prices to see what might be the outcome in real terms. Remembering the current median price as reported in November was $337,500 and the peak of prices was at $352,000 which was in November 2007, so prices are down 4.1% from the peak.

The Reserve Bank estimates that by end of 2010 prices will fall in real terms by 16% from the peak – that would see the median price at $295,680
REINZ expresses a view of a fall of between 5% and 10% this year, that would see prices at this time next year of between $303,750 and $320,625
The BNZ is stating a further 5% fall in prices this year, that would see prices at this time next year of $320,625
UBS economist Robin Clements expects prices this time next year of $299,200
Brendan O’Donovan Westpac’s chief economist expects this year to see a 5% fall to $320,625

Whilst the world is still facing economic uncertainty and growth is at best slowing considerably and as stated earlier in terms of NZ property there is no complete consensus on price expectation, I think there is some valuable take-away from the fact that there is a sense of certainty of the direction and general scale of price falls for the year ahead. This could well assist the market as a large component of the stagnation of the market in 2008 was directly attributable to uncertainty in the minds of property owners.

Big 8 of 08

Posted on: December 31st, 2008 | Filed in Real Estate Industry

As the last few hours of 2008 approach I thought it would be valuable to share a review of 2008 from the perspective of the real estate industry in NZ. This blog provides a rich catalogue from which to review the past 12 months across the 157 posts written.

However rather than establish a Top 10 based on readership or comments, I thought I would pick out 8 key themes (in no particular order) that for me personally have made the most significant impact for the future.

Challenging the norm

Competition is good and healthy in this as in any industry – it ensures complacency cannot survive and ensures innovation can flourish. Real Estate is a competitive industry. There are a vast number of companies and individuals all vying to offer services to sell or lease your property in the most efficient manner for the maximum return. However one notable company departed this industry in the past year, for whilst their market share may have been less than a couple of percent their impact was significant and will continue to be felt into the future.

The Joneses ceased operations in February in a calm and organised manner – time will tell if theirs was a under capitalised business model destined to succeed which became a victim of the dramatically slowing market or whether there were serious flaws in the business model.

Further reading: The Joneses – a review of their impact on real estate in NZ

Changing the rule book

On Thursday 4th September the government passed the new Real Estate Agents Act. Replacing the 33 year old former act, this was a significant milestone for the industry. The new act which is implemented in stages which will be complete by the end of 2009 holds some key provisions for all involved with the industry. Most significant is the establishment of a government agency to oversee all complaints, allied with that is a significant increase in the fines handed down for breaches of the act.

Additionally the act removes the compulsory requirement of all Agents (that being licensees who legally can operate offices as opposed to salespeople who make up the majority of the industry) to be members of the Real Estate Institute. Whilst percieved in public comment as being a diminishing of the role of the Institute (REINZ), it actually holds the opportunity for the Institute to take on the role for which it can provide greatest benefit for professionals in the industry – that of taking a leadership role in advocacy, training, strategy and public profile. The reality was that the Institute was always compromised in its former role being saddled with being the legislative compliance “police” whilst trying to represent the industry.

This new year will herald the establishment of a new form and vision for this industry body – one the vast majority of professionals in the industry eagerly await.

Further reading on the act : Official government release on the new bill

The fuel for the market

The driver of the property market, be it residential or commercial is finance. Property is largely a leveraged asset and therefore the price of, and the accessibility to finance is critical to the health of the market. This past year has been, as once described by Queen Elizabeth a “annus horribilis” as the global credit crisis turned into the global economic crisis the property market appeared to shut-up shop. Sales dried up and ended the year down close to half of the prior year as buyers and sellers alike “sat on their hands” unprepared to enter a market which showed little certainty.

The price of property as measured by median or average price has fallen – not be the 30% level touted by some earlier in the year, but by an order of single digits. A factor in this outcome could well be the very low level of sales.

Distressed sales have occurred as those who found themselves unable to meet repayments or found that refinance was no longer available had to offload in mortgage sales – however despite the rich media coverage of this category of the market, the scale of mortgagee sales is still tiny in relative terms, with just over 400 properties from an available inventory in excess of 80,000.

Further reading: Residential Property Update – November / The credit crisis – New Zealanders’ interest in real estate takes a hit / Will we see property prices rise before 2018?

At the coal face

For the majority of this decade the real estate agent has been much maligned, envied and chastised in equal doses, for they were a critical part of the market as everyone wanted to buy or sell property and the agent held the pivotal role to facilitate these sales. Their percieved fees may have seemed high when properties seemed to sell as soon as they were listed, but truth be told the true income for agents was far from the perception with average income often little more than the average wage. This partly as a result of low barriers to entry which attracts hundreds if not thousands of agents when the market is hot, but often takes a while to shed numbers when the market cools.

The reality is that at its peak with 100,000+ property sales per year there were around 18,000 agents – just five and a half sales per agent per year. With an average net commission of say $5,000 to the agent that makes a gross income of just over $28,000.

Today the level of sales have fallen to around 55,000 – however the number of agents chasing those sales has not fallen by as much resulting in the likely average income falling to below $20,000 for the 14,000 or so agents still active in the industry.

Further reading: A tough year ahead for real estate agents

Head in the sand

This would have to be the favourite image of the year on this blog. It neatly highlights a fixed mindset within certain sectors of the real estate industry which I must say has changed markedly over the last year. I am referring to the love affair between print media and real estate when it comes to advertising. As the excellent quote states “I can’t find a single large real estate brokerage firm in 2007 that says print advertising really works….but I can easily name dozens who still spend the majority of their ad budgets on newspapers. It’s like a chain smoker battling lung cancer, while still smoking two packs a day.”

Changes are occurring as pressure on costs has driven many offices to seriously review the extent of press advertising, and equally has enabled them to recognise the measurable and valuable marketing contribution of specialist real estate websites.

Set against this backdrop and with the benefit of hindsight, it seems odd to look back on the launch and subsequent closure of a new real estate publication – Property Book. It sprung to life in May, just as the market was showing clear signs of stagnation and whilst securing some early supporters in the Auckland region by the end of the year it was gone, all that remains are some large billboards around Auckland themselves a result of the downturn in advertising spend in general across the economy.

Further reading: Newspapers vs. websites – the battle ground for selling your home / Property book – real estate publication online / Newspapers and real estate – a match made in heaven; now beginning to show signs of disaffection

Transparency

This year has seen a growing sense of the industry “opening up” and showing a more transparent and a more open / transparent face. Information and statistics have been more freely communicated and this has assisted buyers and sellers be better informed.

A key component of this has been the use of social media online. The real estate industry is a natural fit to this capability providing individual agents with the opportunity to profile themselves through local blogs. With the launch of the Realestate.co.nz Voices platform we have enabled over 80 agents to present themselves and their ideas, thoughts and skills to the audience they have reached out to. The result is that many of these individuals have seen direct benefit with unsolicited calls seeking a skilled agent to sell property or business, all as a result of the credibility built around their blog.

Not solely restricted to individual agents some of the management and executive of major real estate firms have launched blogs as a means of establishing an impartial and open face to their company – most active of whom is Bryan Thomson, the CEO of Harcourts who started his blog a couple of months ago and provides a valuable insight on the market and the industry from one of the key individuals within it.

Further reading: Check out the variety of agents blogging on Voices / Bryan Thomson’s blog

First round elimination

The real estate market is now more than ever recognising that online is the marketing medium of choice – a necessity for effective marketing of client listings. The past 3 years have been intensely competitive with 3 key sites slugging it out for eyeballs and more importantly the subscriber $ of real estate offices. As is natural in such aggressive markets before long their is elimination as the costs of sustaining the battle becomes unsustainable.

This happened on both sides of the Tasman this year. First to close was MyHome in Australia, started with the massive resources of PBL media and Microsoft. Then in November the #3 player in the NZ market Allrealestate decided to close operations and focus its attention on its Australian site and the other international real estate sites.

Further reading: MyHome (www.myhome.com.au) – an epitaph to aspiring media owned real estate websites / Realestate.co.nz and allrealestate.co.nz form an alliance

The world at your finger tips

The saying goes that the world is getting smaller and the web is clearly a key driver of this accessibility to more information at your fingertips, added to that is the fact that without Google “where would we be!”

Whilst Google may concern many for its enormous repository of knowledge which could be construed as influence and anti-competitive monopolistic power over advertising, the beneficial resources it makes available for free is simply staggering. The launch of Street View in December cannot be underestimated for it opens up for real estate a valuable resource for the effective review of property for all prospective buyers. The sheer cost of this investment to photograph, catalogue and provide a view of literally every property n the country is a testament to the principle of Google’s endeavour to make accessible the world’s information for the benefit of all. Millions were spent by Google and many more will be spent in the future – this is a real example of a paradigm shift that is long remembered after the memories of 2008 fade.

Further reading: Google Street View launch enhances property searching on realestate.co.nz

Happy New Year!

A flat-lining of sales continues to represent the state of the property market

Posted on: December 11th, 2008 | Filed in Buying / Selling a home, Real Estate Industry

The latest reported sales by REINZ of residential property for the month of November (4,279) continues to show a very dormant property market. For 8 consecutive months now the level of sales have fallen within a very tight range varying only by barely 100 property sales from the mid point of 4,360. This level of somewhat static sales would seem to indicate a situation where there is a base level of transactions driven by the “need” to move house rather than any compunction on the part of property owners to “want” to move.

It also seems that a significant jolt will be needed to kick start the beating heart of the industry. The reality though is that December will not be that savior. Consecutively year after year the sales for December tend to be between 15% to 25% below the November sales. This is entirely logical as a property purchase is a complex and time consuming process that is not well placed to be facilitated through the Christmas lead in period. That being the likelihood we are therefore very likely to see the year of 2008 go down as one of the lowest sales periods for property on record, certainly the lowest since the early 1990’s.

The estimate for the full year is looking to be close to 55,300 with the first 11 months totaling just 51,826, this is a full 40% down on the 2007 sales of 86,504 (Jan – Nov) and over half the sales of the peak year of 2003.

As to prices the latest median price was reported at $337,500 an increase on the prior month, but down 4% on the November of last year.

There has been comments made in the media regarding the comparison of the REINZ median price as against the QV average price. Each use different methods to reach a reported price. The concern is that with such low volumes it is ever more likely that medians (and averages) will show significant volatility.

The only real true test of property price movement is the comparison of like-for-like property sales in a local market, this can be done via readily available statistics accessed online or through a real estate agent. The general concsensus from conversations with real estate agents at this time is that property prices continue to be falling as a consequennce of low demand and sales; although as ever every market is unique, but in aggregate there are more local markets with falling prices, than those showing any realistic increases.

The Unconditional Blog

The impartial voice of the industry