The Unconditional Blog

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Mortgage approvals data adds to the stable of valuable property stats

Posted on: July 13th, 2010 | Filed in Buying / Selling a home, Featured, Money Matters

Calculating financial dataAn overriding principle of this website of Unconditional as a complement to the listings website of Realestate.co.nz, is to provide timely and informative insight into the state of the property market, and with it the key statistics that can assist in better understanding the market.

We provide through the statistics from the realestate.co.nz website the NZ Property Report which looks into the supply and inventory of the marketplace – how many new properties are coming onto the market and how much stock of unsold houses are on the market.

To this we also analyse the monthly sales statistics from REINZ as well as the stratified house price index.

It is very clear from the latter statistics, especially volume sales that the NZ property market is either (dependent upon your perspective) in a depressive trough or operating in a new normal.

The chart below summarises the NZ Property market across the best part of two decades. The red line indicating the moving annual total of property sales (right hand axis) with the blue line indicating the value of those transactions (left hand axis).

NZ Property sales moving annual total 1993 to 2010 Realestate.co.nz

The latest data to May 2010 shows that in that preceding 12 months 66,769 properties were sold, whilst this is up from the low point of the year to February 2009, when a total of just 53,520 properties were sold, there has been a noticeable recent decline which followed a period of improving sales coming out of that bottoming of sales. Preceding that was the nearly two year decline in sales which took annual sales from 106,243 in the year to April 2007 to the low point in February 2009.

As ever making objective assessments of the future direction of the market is not an exact science and is why many respected economists and academics are reluctant to make such estimates preferring to let the current direction of trends from a variety of sources help point the way; one such set of data being discussed recently has been mortgage approvals.

Mortgage approvals are statistics released by the Reserve Bank, and are collected from a survey of 7 registered banks and provide statistics of the weekly volume and value of new credit lent for the purchase of property. The chart below tracks such data in terms of the weekly number of mortgage approvals on a 4 week moving average for each of the past 3 years.

NZ Mortgage approvals 2008 to 2010 Realestate.co.nz

Very clearly new mortgage approvals are running considerably lower than the prior 2 years. Whilst the fact that they are low would not come as a surprise, what is somewhat surprising is the fact that they should in theory mirror the volume sales of property over the same period. Tracking monthly property sales over the past 3 years on a similar chart as shown below does not produce that mirror image.

NZ Property sales 2008 2009 2010 Realestate.co.nz

This would seem to indicate that mortgage approvals are not exactly correlated to property sales. Reading the inclusions and exclusions of the data from the Reserve Bank does help to provide an explanation.

The mortgage approval statistics include both refinance to another bank as well as where the liability holder changes as in the case of sales to family trusts.

Whilst the specific details are not available it would seem to indicate that the property market is being typified by far less refinance switching between banks and potentially less trust transfers as home owners as borrowers seek to manage their current mortgage, without hunting around for refinance deals. This would be especially true as switching banks for refinance could open up issues such as debt to equity ratios when the property value may have fallen in recent years.

Another factor behind the lower mortgage approvals rate to property sales rate could well be the first signs of “Baby Boomers” selling down properties for which a new property could be funded mortgage free.

As ever richer information in the form of property statistics can be helpful to make better informed decisions in the market, and thereby ensure clarity and comprehension.

Article Discussion

  1. Kate says:

    Once again, just brilliant information and graphs that provide very useful illustrations of that information. In particular the first graph is most interesting to note the point at which the red/blue lines intersect in 2005…. the beginning of the unaffordability trend I suspect, whereby market value trends got ahead of sales volume trends.

    Generally I think this suggests that those individuals/families who were not first home buyers prior to that juxtaposition will be disadvantaged economically (from an equity store perspective) and hence socially for the foreseeable future.

  2. Alistair Helm says:

    Kate

    As ever, thanks for the feedback. I would undoubtedly agree with your summation – that is certainly a factor in the state of the market today.

    Please don’t hesitate to suggest any other data which you might feel would be useful to expose.

  3. JohnB says:

    Thanks for the ideas, there is a point you have not discussed, that of the quantity of approvals vs sales.

    The number of sales is almost the same as mortgage approvals in 2010, ie around the 5,500 mark, suggesting the entire mortgage market is for house purchases.
    But, the scales are very different for the 2008 and 2009 years, where mortgage approvals sit around the 7,000 mark, but sales are 4,500 and 6,000 respectively.

    My interpretation of this is that the difference is the number of mortgage approvals for people getting equity out of their houses for spending – apparently a common occurrence during the boom, so when did it stop?

  4. KrisNygren says:

    Hi Alistair

    Interesting piece! I wonder what the “equilibrium”/long term average for property stock-turns is in NZ (or developed countries with reasonably efficient property markets). I.e. what level of monthly or annual property sales should we expect the NZ market to average out at taking in long term fundamentals such as population growth trends?

  5. Alistair Helm says:

    JohnB

    Interesting question and perspective – let me look at the data again and see how I can present this as a Part2 to this piece.

    Kris

    That is a common question – the accepted wisdom is that people move house an average of every 7 years – the data is supported by QV.

    However in the past I have tracked the annual sales to established base of all residential dwellings in NZ as tracked by census data. The fact is that this ratio is currently sitting at a low of 4.3% of established base selling every year based on moving annual total. It is not at the lowest point, that was at an all time low of 3.5% in Feb 2009, by comparison back in the early part of the decade it was averaging between 7% and 8%, in the 1990 its lowest point was 5.1% – the last time I posted this data was back in November last year “Are boom times back for real estate” with a graph tracking this analysis – should probably update this data – new blog post coming!

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