The press release from the Real Estate Institute (REINZ) detailing the sales statistics for March came as no surprise in terms of the number of properties sold in the month.
The figure of 5,186 was pretty clearly flagged in the Barfoot & Thompson sales report released on the 4th April which showed a sales total of 632 a 56% decline from March last year. With a market share of between 11% and 12% the B&T data is clearly a lead indicator for the total market.
Tracking the sales in unit volume (red line) and value (blue line) clearly shows how steep the fall off in sales has been. The number of house sales has been falling since their peak (measured on an annualised basis) of 121,777 in April 2004. The latest fall began almost a year ago when annual sales were steady at around 103,000. That number has now fallen to 81,000 and the likelyhood is that by year end we could well see an annualised sales volume of close to the troughs of the late 90’s with around 65,000.
While the sales volumes were in some way predictable the median price was less so. The explanation from REINZ was “an especially noticable drop in under $400,000 properties” – now this would lead to a higher median. However examining the detailed stats in my mind does not wholly support this assertion.
Making a year on year comparison for sales of sub-$400k properties showed just 3,125 in March 2008 vs. 6,832 a year earlier – a 54% decline. However total sales were down 53% – not that significant a difference. In terms of proportion of total sales sub-$400k properties fell to 60.9% in March from 64% in Feb, but tracking back a year or 2 shows the same somewhat seasonal fall off. Extending the tracking period to a 3 month moving average does not show any great difference.
What is far more interesting is the $600k to $1million segment of the market. This price bracket represented in March 12% of all sales with 614 properties, it was down 49% – slightly less than the total market. This segment is noticable for the fact that it has grown from 6% of sales 3 years ago and continues to track ahead of the market.
You will recall that the median price from the B&T report showed a similar rise in their average price from $495k in Feb to $522k in March.
Now median prices can be misleading as we continue to be told especially when volumes fall – however a sample of 5,000 is pretty significant statistically – 10,000 is better. As ever the true indicator of property prices will be shown when individual reports emerge of properties sold below the price purchased a couple of years ago. Until then I think we will have to patiently wait and see, as are most of the property owners who seem resigned to “tough out this market” and hold off moving.
………………………….
Update 14 April
The latest QV report for March seems to echo this sentiment that there is as yet no clear indication on the direction of pricing.
Their view supporting the fact that the average New Zealand sale price decreased to $388,894 this month (from $393,240 last month) was a function of “The drop in average sale price this month is a reflection of more activity at the bottom end of the market, and less at the top end, rather than any significant drop in value. Many investors may be seeking to reduce their exposure to increasing mortgage costs, and having made good capital gains over the last few years are now looking to sell”
It is likely that if we do witness such sell off then pricing will be depressed but with such a significant drop off in sales so quickly we could be experiencing a “hunker down” mentality which could ride us through the next 12 – 24 months.
It’s no wonder buyers and sellers are confused – REINZ say there has been low activity in the lower price range yet two days later QV say more activity at the low end of the market! Who should they believe?
Ross
A good question – it does speak to the very different data sources of REINZ and QV as I detailed in the post from December “House prices up or down – who to believe QV or REINZ?“
Really fascinating graph – I do so enjoy this kind of analysis. It is interesting to note the intersection of the two trends in 2003, whereafter value growth exceeded (and way exceeded) volume trends. Sales values increased, whilst volumes dipped – opening a statistically remarkable gap. Just a totally anecdotal guess but I’d say this is around the period when banks relaxed their minimum deposit requirements – a whole bunch of greenhorns ‘graduated’ from the Richmastery and other mania investment courses – armed with foolish ambition and scant consideration for the real implications of debt.
Have to agree with Kate. I liken the markets to the seasons. There are times to sow investments and time to harvest returns. You can get in a real pickle if you plant seeds when you should be harvesting…
Martin
Most profound!
There are certainly always opportunities for astute buyers in any market – as is often said of real estate, you only really make money in buying well. Today’s market is already opening up some opportunities for well funded buyers.
Alistair
Sadly I am not convinced that todays prices are the best bargains as I don’t believe we have seen the full fall out of the bubble bursting. Despite what has been said, all evidence points to a global liquidity bubble that is unravelling, almost like watching a train wreck in slow motion.
Property prices have been propelled upwards by excessive money creation by all of the central banks. RBNZ has doubled the money supply in this country since 2000 (source RBNZ reported M3 money supply growth).
It is true that NZ has not had the same loose lending as overseas, but we still have had too many people exposing themselves to too much leverage by way of LAQC investing.
When leverage starts to unwind, it does so at an explosive pace. As yet all we have seen is a slight slow down and a lttle nervousness, not fear or hardship. For those interested, this article makes some interesting points on bubble formation, and how they typically end. It’s a little in depth, but very insightful.
I continue to keep my cash on the sidelines watching, and looking out for some profitable investments. I want positive cashflow from my investments!
Martin, I agree – if by “today’s prices” you mean roughly a 10% drop on last year’s prices – I don’t think that’s where the bottom will end either. The method or ‘rule’ I’m following with respect to prospective purchases presently is to check out the last time the property sold. If it is 2004 or earlier great – anything later than that and the seller is unlikely to let go of it for a 2003/04 price. But that’s where I think prices will come back to, 2003/04 – as that’s when houses were affordable relative to wages. Of course, if borrowing gets really cheap again (4-5%) prices might not slide that much – and if lending tightens further – they could well slide even further.
To follow on,has anyone noticed,some of our more shady agents in Tauranga are now setting prices for vendors 10-20% higher,to offset the current downturn in prices?This,of course,does not help the vendor as it will take even longer to sell the property,maybe finally resulting in a dramatic price loss!
Ian, are you sure it is the agent setting the price, you might want to consider the vendor may have set the price “because the one down the road sold last year at the same price so mine must be the same”