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Property price pressure is clearly evident in Auckland and Christchurch

Posted on: March 20th, 2012 | Filed in Featured, REINZ Monthly data

The media has certainly been alert to discussions around the possibility of a housing boom starting to emerge – even seeing the Prime Minister weigh into the debate on TVNZ’s breakfast show yesterday.

Certainly the property market has come alive in the past 6 months with a significant increase in sales with some localised price increases, most significantly in Auckland and Christchurch. In these two markets when viewed on the basis of the more accurate Stratified median house price index as published jointly by the Reserve Bank and the Real Estate Institute (REINZ) you can see new peaks being achieved as detailed in the following 2 charts:

In Auckland the Stratified median price in February was $513,612 which is up $3,500 from the peak of the market before the crash of 2007 – a period of over four and a half years, although the last 14 months has seen a steady and progressive rise and in December the market price peaked at a new level of $516,625.

In Christchurch the Stratified median price in February was $355,725 which is still down from the peak of the market before the crash of 2007 – a period of over four and a half years, although the prices have been steadily rising for about two and a half years and in November the market price peaked at a new level of $367,025, up $4,500 from the 2007 peak.

These are the two most active regions in today’s market and yet neither are showing any real price appreciation when you factor in inflation over the past 5 years.

When you consider the national picture on house prices the chart below shows that the stratified median house price at $369,550 in February is still 3% below the peak of the market of November 2007, although the recent 14 months has seen a steady increase from a low of $351,450 in January 2011.

Looking at the Wellington market shows a very different picture. In this region stratified median price in February was $405,250, down 4.6% from the peak of Oct 2009 / Sep 2007 which saw prices of $424,615 and $423,955 respectively.

Are we about to see another property price bubble?

Posted on: March 14th, 2012 | Filed in Buying / Selling a home, Featured, Media commmentary, REINZ Monthly data

The weekend opinion piece by Bernard Hickey published on the NZ Herald (Bank blows bubbles) and on Interest.co.nz certainly captured attention with both media platforms receiving extensive comments from engaged readers.

The article proffers the opinion that the actions of the Reserve Bank back in 2003, in deciding to continually cut the Official Cash Rate from 5.75% to 5.0% and the hold it there despite the frothy economy was pivotal in driving the bubble in house prices seen to occur over the ensuing 4 years; during which time period as Bernard states “houses prices almost doubled”.

The fact is that the Stratified median house price in January 2003 was $203,550; just under 5 years later in November 2007 the market peaked with a price of $380,900 an 87% increase.

Bernard then goes on to state that the current activity by the Reserve Bank to hold the OCR at the current rate of 2.5% is “history repeating itself, or more colourfully put – deja vu all over again?” and given the recent rise in property sales, he goes on to forecasts that we are likely to see another property price bubble in the coming years.

To be clear Bernard is not saying that we will see an 87% increase in house prices over the next 5 years, he simply seeks to challenge the assumptions of the Reserve Bank and seek to highlight “worrying early signs” such as the latest report by Barfoot & Thompson for February and the BNZ – REINZ survey both citing “increasingly bubbly sounds” from the property market. The latest data from REINZ for February sales would seem to support this view.

This supposition deserves some deeper analysis of the underlying numbers (which are public data from REINZ) to bring some perspective to the discussion.

The chart below uses the REINZ / Reserve Bank Stratified median house price data and compares the prior 5 years to the start of 2003 against the most recent 5 year period as cited by Bernard, to see if the circumstances leading up to this sense of deja vu are really that similar.

The chart shows the 5 year period of 1998 to 2003 in the blue line with the left hand axis, tracked against the most recent 5 years of Stratified median house prices to February 2012 with the red line on the right hand axis. Matching these 2 separate 5 year periods provides a valid comparison allowing for the very different scales.

What is clear from the chart is that property prices in the run up to the decisions made by the Reserve Bank in 2003 were already on the rise; and had been for over 20 months. In fact based on the point 22 months back on the chart (April 2001) the stratified median house price was $176,775. From then on prices started to rise and by the zero month on the chart representing Feb 2003 they were already up by 17% before the actions of the Reserve Bank.

By comparison the recent 5 year period showed a turning point around 28 months ago (Oct 2009) when prices had been rising and leveled off, from that point in October 2009 right up until this month of February 2012 prices have risen by less than 1%. In fact the rise has been only $575.

The chart below shows the consequential impact as judged by Bernard as to the actions of the Reserve Bank through the 4 years following 2003.

Pretty striking – the question is, will the current market take off to such an extent? Based on the current data is looks less likely I would suggest.

There is no doubt that the heat in the NZ property market at this time is in Auckland and to analyse this region separately can add further insight to this discussion, therefore below is the paired charts for Auckland on the same perspective as the national charts above.

The interpretation I would make from this view of Auckland would be that the trend is mirroring the national perspective with a faster rate of increase, much as was seen in the 1998 to 2006 period. That would seem to support the view that we are likely to see some price increase in Auckland and across the country in the coming 5 years but not of the scale of the 2003 to 2007 period.

Fundamental Economics

In discussing the likelihood of a property price bubble it is critical not to ignore fundamental economics – the laws of supply and demand. On the supply side of the market there are currently constraints with a shortage of listings and inventory of property on the market below long term average as has been detailed in the NZ Property Reports through most of the second half of last year, however this is likely to ease as more listings are coming onto the market as cited by the rise through February. Sadly the parallel data for supply side for the period of 1998 to 2006 is not available. It is only with the advent of the web as the primary means of marketing real estate have we accessed to such data through realestate.co.nz.

On the demand side the rate of sales of property is the best surrogate and the chart below provides a compelling reason to believe that “things are different this time”!

The red line tracks the current 12 month moving average sales of properties over the past 5 years matched to sales of the 5 years leading up to 2003. This is very significant. Currently sales of properties are running at a rate of just over 61,000 per year whereas leading up to 2003 and the actions of the Reserve Bank at the time, they were running at over 100,000 a year, that is a difference of 63%.

The froth in the property market which catapulted the house price bubble from 2003 to 2007 was more likely to have been driven by the highly active demand from buyers anxious to “get onto the property money train” at that time, certainly influenced by low interest rates, but not solely the action in cutting OCR. Property sales had started ramping up well before 2003, in fact sales started to rise in 2001 and kept on rising to peak at over 120,000 per year in 2004.

At this time sales are rising – certainly not as fast nor at such a frothy level. That would seem to be a very compelling part of the picture to better understand the likelihood for another property price bubble – not that likely.

UPDATE (3.30pm 14th March)

This article has been published on interest.co.nz as an opinion piece to complement the original opinion piece by Bernard – for this I am very grateful.

A comment has just been posted by “Basil Brush III”

“How about adjusting those wonderful graphs for the relative inflation rates of each period. I would bet Alistair Helm cannot do that and make the same statement”

Well I love a challenge so for Basil Brush III here is the key chart adjusted for inflation over the period – looks to me like the argument is even stronger that we are not likely to see a bubble!

Property sales have clearly turned a corner

Posted on: January 26th, 2012 | Filed in Buying / Selling a home, Featured, REINZ Monthly data

The property market in NZ starts 2012 in better shape than it has for the past 5 years. It would not be too optimistic to say that the industry, certainly in terms of volume sales has turned a corner. Some parts turned that corner 6 months ago (notably Auckland) whilst some will take a few more months before witnessing this change.

In the 12 months of 2011 a total of 61, 269 properties were sold across the country as reported by the Real Estate Institute. This represented a modest 9% growth as compared to 2010. The word modest is most appropriate when the volume of sales is viewed against the perspective of the past 20 years.

20011 was much improved from both 2008 and 2010 which represented the lowest sales volumes of the past 20 years, barely struggling to reach half the sales volumes of the peak years of 2002 to 2007.

As ever 20/20 hindsight is a powerful tool and applying it now applies a clearer view on those heady days and reflect that this period was a bubble – one unlikely to be repeated for many years, if ever again.

What drove that bubble and created that frenetic pace of market activity?

A number of factors were conspicuous: the rise in investor market activity as the NZ economy grew through global growth and strong immigration, the banks were certainly relaxed about deposit requirements and other investment options showed far less appeal or tax or leverage advantage. That convergence of events lead to a virtuous cycle (depending on your perspective as many would argue a fateful and perilous cycle), whereby those on the treadmill of property ownership felt richer as asset values as a surrogate of property prices grew at a heady 10+% a year rate.

The important thing to see is that if this heady period is ignored as an aberration, the current sales levels still sits well below the levels of the market through the 1990′s. This is the validation to the proposition that the industry has turned a corner. Average annual sales through 1993 to 2001 was 78,000 a year – that means the current year up 9% vs 2010 is still down 22% from the average of the 90’s.

This perspective is seen even clearer when property sales are matched to the growing population of NZ and the number of houses. It makes logical sense that as the population grows, the housing stock must grow and thereby so must sales as people always need to relocate for the logical need of jobs, lifestyle, financial, schools, family etc.

Over the period from 1993 to 2001 the number of houses in NZ grew from just under 1.2 million to 1.37 million and has continued to grow (even allowing for the depressed construction market of the last 4 years) to around 1.55 million today – that is around 350,000 more houses in NZ today than there were at the beginning of the 90’s. Yet the volume of property sales are 22% less!

This conundrum is best visualised in the chart below which tracks the % of property sales on a moving annual total basis against the total number of properties in NZ.

The chart provides a further validation to the belief that property sales are likely to see growth in the coming years. The current rate of sale is 4% of all properties sold per year. The long term average for the past 20 years is 6%, during the 90’s the rate was 6.2%.

If the rate of sale were to return to the 90’s levels we would see a 56% rise in sales to 95,000. If we only saw a rise to the lowest point of the 90’s at 4.7% we would still see a rise in sales of 73,000 a rise of 19%.

Shortage of listings is key to the state of the property market

Posted on: July 20th, 2011 | Filed in Buying / Selling a home, Featured, Real Estate Industry, REINZ Monthly data

The monthly sales report from the Real Estate Institute (REINZ) states clearly that “Listings tight in June housing market” – this assessment comes from “strong indications from agents in many regions that the supply of properties is really tightening“.

This perception is reality; the data in the monthly NZ Property Report underpins this with the numbers to show the decline in new listings as detailed in the chart below.

Listing numbers have been falling steadily for over a year, and matched to a slowly rising rate of sales, is beginning to show in the declining stock of homes on the market. This could potentially lead to a demand heavy market which could see price pressure in the medium term.

To better highlight the listings to sales ratios; I have developed these charts to show the picture nationally and regionally. I have assessed the property market based on the first 6 months of 2011 vs the first 6 months of 2010. Nationally this year is showing sales down 1% – however if you remove the Canterbury region the national picture shows a 4% growth in sales. Matched to this is a 14% decline in new listings (17% decline if you include Canterbury).

The chart ably demonstrates why Auckland is most definitely feeling the effect of a tighter property market – sales up 10% and listings down 13%. Wellington sales are sluggish but again listings are down 12% whilst Canterbury is experiencing the unique aspects of the earthquake of February.

Looking around the country the regions that are showing growth in sales year-on-year are grouped in the chart below. Eight of the 19 regions show year-on-year growth in sales – the West Coast of the south island topping out with a sales rise of 14%. All regions though show declines in listings.

The remaining 11 regions of the country presented in the chart below are witnessing year-on-year sales declines, some double digit declines. Equally they all (with the exception of Nelson) are seeing declining listings, largely in line or greater than the decline in sales.

NZ property prices continue to ease

Posted on: June 15th, 2011 | Filed in Buying / Selling a home, Featured, REINZ Monthly data

The latest property sales data released by the Real Estate Institute yesterday highlighted the easing of property prices in May. The national median price of all properties sold in the month was $350,000 down from $360,000 in April. A year ago the median price was $350,000, 2 years ago in May 2009 it was $337,500.

The median price is the midpoint price of all sales in the month; whilst a consistently trusted measure of the market price for property it can be influenced if the composition of the properties sold skews heavily towards high end or the low end of the market. For this reason REINZ developed in association with The Reserve Bank the Stratified House Price Index which applies a modeling technique which ensure that the composition (price ranges) of property sales does not skew price data – effectively ensuring that the index reflects the true value of property sales on a “like-for-like” basis.

The Stratified price for properties sold in May across the country was $358,925 down from $365,593 in April, a fall of 1.8%. A year ago the stratified price was $361,610 (down 0.7%), 2 years ago in May 2009 it was $353,425 (a rise of 1.6%).

So by this measure properties values seem to be pretty static with a small degree of long term rise. However to gain a true picture of property prices and values you need to see the picture of the trend over the longer term.

The chart below shows the stratified price for property sales across the whole country covering the period since 2007. The chart shows that over the past 18 months since late 2009 prices have definitely eased.

Current price of property sales prices remain 5.8% below the peak of property prices which was over 3½ years ago. The bottom of the recent property cycle was over 2 years ago in January 2009 when prices dropped to $337,400, the current price is 6.4% up from that point.

Out of interest casting the data back over the past 2 decades ably reminds of us of the history of the NZ property market as shown below!

The stratified price data is provided for each of the main metropolitan areas (Auckland, Wellington and Christchurch) as well as the North Island and South Island aggregate of property sales outside of the main metropolitan areas. The detailed paired charts below highlight these 5 regions for both recent property prices as well as long term.

Auckland

Wellington

Christchurch

North Island excluding Auckland and Wellington

South Island excluding Christchurch

February property market remains subdued

Posted on: March 16th, 2011 | Filed in Featured, REINZ Monthly data

The latest data released by REINZ for property sales in February show that the property market is still somewhat subdued.

February is traditionally an active month as summer interest in property grows after the Christmas and summer vacation period finishes. It is usually the 3rd most active month in terms of sales despite its shorter period. It tends to see sales around 6.5% higher than an average month.

In February total sales reported by real estate agents around the country and collated by REINZ amounted to 4,502. This compares with 3,252 in January and 5,029 in February last year. Seasonally adjusting the figure shows a 12% rise from January.The chart below details the seasonally adjusted sales by month going back over 5 years and shows the market trend.

Recent sales levels have been low. The February 2011 figure is the lowest February total ever recorded going back to 1992, it is the first time sales in February have fallen below 5,000. The rolling 12 month sales now totals 55,362 down from 69,390 a year ago.

One contributory factor for the lower sales in February and very likely to be a key factor in future months is Christchurch. The February total sales in Christchurch was just 244 as compared to 519 in February last year. The Canterbury region is the second largest region of the country typically representing just under 15% of total national sales. The region suffered a significant slow down after the September quake and that is only likely to continue for many months to come.

Across the country sales have been variable as shown by this regional map of trends in sales volumes comparing February 2011 with February 2010.

With just 4 of the 19 regions showing actual year-on-year growth in sales volumes the mood of the market is clearly subdued. The deep red colour for 12 of the 19 regions indicates where year-on-year volumes are showing more than a 5% decline.

The median price of sales reported by REINZ as shown in the regional chart below provides a window to regional price movements on a year-on-year comparison. The national median price did not move between February 2010 and February 2011 at $350,000.

There were 4 regions showing median price increases of more than 5% year-on-year with 5 regions showing a fall in median price of more than 5% year-on-year.

Auckland with a 3.3% median price rise complemented with a 1.4% volume lift year-on-year would appear to be a lead region for the country as was commented on in the recent analysis of the Barfoot & Thompson data released earlier this month.

Analysis of the Auckland property market

Posted on: March 9th, 2011 | Filed in Buying / Selling a home, Featured, REINZ Monthly data

Last week Barfoot & Thompson, Auckland’s leading largest real estate company published their monthly sales statistics. The headline from B&T was “Housing market resilient, sales jump in February” – interestingly from these monthly statistics the the media commentary varied between “Auckland housing market improves” (NZ Herald) to “No housing glut in Auckland – agent” (TVNZ). I thought that a deeper analysis and visual representation of the data for the important Auckland market would be of value.

Property Prices

The price of property is always of interest to buyers, sellers and property owners. Barfoot & Thompson figure for February showed an average price of $521,887 recording a 1.2% increase from January. The average sale price in February last year was $521,324 indicating that prices are in the main flat as judged by the sales made through the B&T offices. The chart below tracks the average selling price (3 month moving average) for Barfoot & Thompson sold properties over the past 4 years. The calendar years of 2007 / 2009 and 2011 are shown as red part of the line with 2008 and 2010 as blue part.

The chart ably shows the peak of the market through 2007 before the property market collapse. Two years later in 2009 it shows the return to the peak before seeing in 2010 a further fall in the sales price with some erratic movements.

The data from B&T can provide a good early insight into this key market, as their data is released earlier in the month than the REINZ sales data. At the same time the B&T data is based on the average sale price which is naturally influenced by the mix of high vs. low price properties. In recent years as volumes have fallen so the data of average price can be affected by the mix of properties sold. It is for this reason that I favour the REINZ based Stratified Price analysis carried out by the Reserve Bank. This analysis seeks to remove the influence of the mix properties sold in a month. The chart below shows this analysis of the stratified mean price for Auckland over the past 4 years.

The chart has been highlighted to show the peak of the market across the Auckland region in July 2007 at $510,197. Through 2008 the price of property sold dropped to a low of $435,700 before recovering in 2009. Since early 2010 the sale price has slipped to a current level of $464,425 still off 9% from the peak over 3 years ago.

Property Sales

The health of the market is often best represented by the number of transactions, as confidence in the market stimulates both buyers and sellers. The February sales by B&T totaled 619, up from the 563 in January and pretty close to the February 2010 total of 626. The chart below tracks the prior 3 years of sales by B&T.

From the chart it can be clearly seen that sales in February lifted from the lows of December and January. The key question will be whether the early indications of 2011 result in a lift for the remainder of the year as was seen in 2009.

The one factor in property sales which can distort the sales trend is the seasonality – the reality is that more properties are sold during the key summer months than the winter months, this can tend to distort the numbers per month. Removing this seasonality factor provides a clearer picture as to the underlying trend in the property market – a truer picture of the health of the market. The seasonally adjusted sales for the B&T sales of the past 3 years are shown in this chart below.

The chart better represents the trend of sales which is showing a steady monthly level for the past 12 months of around 600 per month. This compares with c. 500 per month in 2008 and 0ver 700 per month in 2009.

Inventory

The number of properties on the market also provides a valuable assessment of the health of the property market. The monthly NZ Property Report tracks the inventory in relation to the rate of sale, thereby providing a perspective based on equivalent weeks of sale of existing inventory. The chart below shows real levels of inventory of property on the market over the past 3 years.

The chart speaks to the media story of there not being a glut of properties on the market – that would certainly be substantiated by the chart, however the market continues to hold a relatively high level of properties for sale, at this time there are 13,720 properties for sale in the Auckland region being marketed by licensed real estate agents.

Keeping up to date with the property market

Posted on: January 26th, 2011 | Filed in Featured, Market News, Real Estate Industry, REINZ Monthly data

Perfect image of houses cropped It is late January and I must admit the Unconditional blog has been a bit quiet for the past few weeks as an extended vacation has meant I have not addressed an update on the NZ Property market.

Well, now back firmly in the chair, I intend to address this issue by providing some key facts of assistance to any prospective buyer or seller as well as those fond of keeping a close eye on the property market.

The first data of 2011 will be published next Tuesday, the 1st of February when the NZ Property Report from Realestate.co.nz is published. The data will detail the level of activity of new listings coming onto the market in the first month of this new year. Suffice to say at this stage it is looking to be pretty quiet as far as new listings are concerned.

Closing out 2010 data from the Real Estate Institute showed sales in December of 4,397 properties, this was though up a seasonally adjusted 7.1% from the November sales; which itself was up a seasonally adjusted 23% from October.

However despite this recent pick-up in sales the total sales in the full calendar year were just 56,303. This figure is a mere 175 properties more than the lowest year since recording data back to 1992 (that prior lowest was 2008). It is very clear from the chart below the new levels of property sales of the past3 years since the turning point in the market.

Whilst the calendar year data shows the big picture it is inadequate in highlighting trends. For this I favour the seasonally adjusted monthly sales tracking as detailed in the chart below tracing the past 5 years by month since January 2006.

In separating key periods I have tried to highlight the trends. The start of 2006 saw a fairly stable period for well over a year, right up to the turning point in the market in early 2007. The next year saw a significant fall to late summer 2008. Then followed a 9 month period of stability – a sense of adjustment before a resurgence occurred through a 7 month period in mid 2009. Unfortunately that resurgence ran out of steam as Spring 2009 appeared and the market has subsequently been sent backwards for the next 12 months.

To call a turning point is risky, but the chart does show some favourable signs through the past 3 months. As ever it is better to reflect after 6 months than just one quarter.

Sales volumes are a key indicator of the health of the market from the perspective of activity (as without buyer you have no market!). The level of demand is often best represented by price movements and to close out 2010 it is worth looking at what the trends are for property sales price. Using the Stratified House Price Index provided by the Real Estate Institute in consultation with the Reserve Bank as the measure, the chart below tracks the national price over the past 4 years.

The December stratified median price was $360,660 down from the November levels and as shown from the chart, down 5.3% from the peak price in the market back in November 2007. The selling price over the past 12 to 15 months has been tracking in a very narrow band from $370,000 to just below $357,000, there does appear to be a slight decline, but given the split axis this trend is very slight and it might be better to call these prices stable. Which when set against global property price movements of the past couple of years would be seen as favourable by the more optimistic among those property watchers.

September 2010 Property market video – Realestate.co.nz

Posted on: October 15th, 2010 | Filed in Buying / Selling a home, Featured, Market News, REINZ Monthly data

The latest statistics from the Real Estate Institute for September, providing insight into the residential property market are presented in this video.

The key charts to accompany the video are provided below:

The sales analysis of the 3 key metro areas highlights the impact of the Canterbury earthquake on sales in the region. The flat property sales market in Wellington is contrasted with a rise in sales in Auckland of 12%. The sales figures are seasonally adjusted to allow comparable month by month comparisons.

The Stratified price for the total of NZ shows the extent to which prices have continued to slide over the past year since November last year when they had recovered some of the early falls after the peak in mid 2007. The current stratified price across the country is $359,555.

The Auckland property prices have risen sharply in September to $487,800 to edge closer to that long term peak of July 2007, currently that differential is 4.4%.

The Wellington property prices continue to see some weakness with the stratified price down in the month to $403,595 which is 4.3% below the peak of the market just under a year ago.

The Christchurch stratified property price continued to show weakness. It is likely that the impact of the recent earthquake and the resultant fall in sales could impact reported prices and the state of the market. For the month of September the stratified price was $330,750. This level represents a level 6.7% below the peak of the property market in the city back in October 2007.

Canterbury market continues to feel the after effects of earthquake

Posted on: October 14th, 2010 | Filed in Featured, Regional News, REINZ Monthly data, Website searching

The latest sales results released today by the Real Estate Institute bear witness to the fact that the real estate market across the Canterbury region is struggling. A total of 359 properties were sold in September down from the 884 sold in the same month last year and also down from the 647 in September 2008 – up until August, the 2010 year was tracking pretty close to the same levels as 2008 as seen from the chart below.

The results for the Canterbury region are not unexpected given the catastrophic impact that the earthquake had on the built environment, not just in terms of actual structural damage, but more importantly in verification of structural integrity. The early signs of the impact of the earthquake were seen in terms of website visitors as seen in the days after the impact. That situation was showing signs of improving. However as can be seen from the chart below now that four weeks have passed the overall level of visitor traffic is down around 23% from where it would have been expected to be at this time of the year.

The other early sign of the impact of the earthquake on the region was reported within the monthly NZ Property Report which was published on the 1st October and covered the month of September in terms of new listings. In September a total 1,211 new properties were listed in the Canterbury region which was down 19% on a seasonally adjusted basis from August. This compared to a total for all other regions of the country excluding Canterbury showing a small 1% increase from August on a seasonally adjusted basis.

Half way through October the picture is looking very similar with new listings still down, this is best shown from the chart below which tracks the % representation of the Canterbury region listings each month. The October data is for the first 14 days of the month so far.

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