Calling a turning point in a market is a risky thing to try and do, but when it comes to property sales there is now compelling evidence that the market is warming up again following some of the slowest sales months of the last decade.
Leveraging multiple sources of data provides robustness to this prognosis:
1. Website visitor activity in line with 2007 despite earlier fall off
The level of visitor sessions from domestic browsers to a basket of real estate websites has shown a tenacious attraction – defying the doomsayers of the media. Averaging around 325,000 sessions per week, this is pretty much line-ball with this time last year when the pace of the market was considerably more active. The graph below tracks this basket of 6 websites through 2006/ 2007 / 2008. The post earlier in the year sited the striking coincidence between the timing of extensive media coverage by prophesiers of a property crash and the fall off in traffic to these websites back in late February early March, a position from which a more stable level of engagement has followed.
2. Inventory is reducing whilst sales volumes are plateauing
The inventory of residential properties on the realestate.co.nz website is falling – July saw inventory of homes for sale fall from an April peak of 65,716 to just 60,150. This is the 3rd straight month of inventory falls. The sales volumes for the same period have been pretty stagnant at around 4,350. There tends to be a lag effect between listings inventory movements and sales of between 1 and 2 months in most cases. The July sales figures from the REINZ showed an unseasonal increase from June (July is normally the lowest sales month of the year). The graph below tracks the inventory and sales per month from October 2006; it is very clear the turning point of July 2007 when sales started stalling and inventory started rising.
3. Enquiry for properties is increasing
The number of email enquiries forwarded to real estate agents from realestate.co.nz on behalf of interested buyers has grown markedly as can be seen from the graph below. The graph tracks comparable enquiries on a seasonally adjusted basis over the past 18 months with the period since May showing a marked upturn.
Now the key point in this collective analysis is market liquidity, there is no inference for property prices. The current analysis provided by the Real Estate Institute’s sales and median price data up to July show the median price stagnant in the range $340,000 to $350,000 a position it has held now for over 16 months with the exception of just 3 of those months. Does this tell us that property prices are definitely holding their own or has the sales decline so significantly altered the mix that the median can remain static whilst underlying prices change? – I don’t propose to attempt to predict prices.
Finally I would add one more validation to this premise that the market is active, far more active than the most recent 4 month period. That validation comes from an economist – Tony Alexander who in his BNZ weekly overview of the 14th August commented:
“The REINZ reported this week that there were 4,489 dwellings sold around New Zealand in July. This was a decrease of 33% from a year earlier which sounds fairly shocking. But it’s actually the weakest annual rate of decline since February and in seasonally adjusted terms sales in the month improved by roughly 5% after rising 9% in June.
Sales activity appears to have been at its most depressed levels over the months of March, April, and May but since then there has been some greater matching up of the dreams of buyers and the hopes of sellers and hence an improvement in turnover.”
Further he commented in regard to pricing
“..it’s interesting to see that still there is no evidence prices are pulling back to any significant degree. The median dwelling sale price for the entire country in July was $340,000. This was exactly the same as the median price in June and down by only 1.4% from a year earlier
For the moment we think the results for June and July indicate a pulling back from the scenarios some people are peddling involving prices falling 30%. Heck, even in the United States prices have “only” declined 19% over a two-year period and they experienced massive bad bank lending to people who should never have been given a sniff of mortgage money in the first place at low teaser interest rates of 2%. Nothing remotely approaching that has happened in New Zealand and we know many people got a very unpleasant surprise over the past three years when they went to their bank expecting to get 100% financing and found their income was not high enough to qualify.”
As a final cautionary note he states:
” ..it would be equally wrong to believe there is anything remotely smelling like an upturn just around the corner.”
” So the interpretation we invite people to take from these latest numbers is merely a pulling back from an ugly brink but not the end of the downward slope or even visual confirmation of the bottom in the near distance”.
My take on this as a summary would be that I think we can expect the traditional lift in sales and interest in the market that spring usually brings but not necessarily at the kind of levels we’ve seen in recent years, hence why I say an upturn in the market is imminent. Just to ensure that I temper any implied over enthusiasm, the analogy I would use to describe this warming of the market is the kind of slow and steady warmth you apply to frostbitten body-parts to avoid amputation!