The Unconditional Blog

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Mortgagee stress in the NZ Property market?

Posted on: June 11th, 2012 | Filed in Buying / Selling a home, Media commmentary, Money Matters

We seem to have a difference of opinion according to the newspapers recently. The NZ Herald had a front page story titled “Mortgagee sales: Landlords feel pain” in which the author quoting the latest mortgagee sales stats from Terralink, says that these figures “challenge” the stats from Realestate.co.nz that “claims” that foreclosures are declining.

So what is the truth. Are mortgagee sales declining or increasing and which data is right? The fact is both companies and both sets of data are right. It all comes down to the understanding of the different data sources and the interpretation of that data.

To provide clarity let me present both sets of data.

Mortgagee Sales

Terralink International provide a report detailing the sale of properties classed as mortgagee sales. They collect this data from LINZ (Land Information NZ) which as a government organisation is charged with registering title changes. Terralink has been analysing this data and identifying sales as those where the vendor is a bank or financial institution. That being the case when a bank has re-possessed a property where the owner has forfieted the right of ownership when the mortgage payments have been failed to be paid.

Terralink report that in 2011 2,265 properties were sold where the vendor was a bank or financial institution. On a quarterly basis the sales are shown below. The last reported monthly stats from Terralink were reported in June 2010.

As the data shows the peak of sales were in 2009 with a total of 3,024 in the year. Certainly the first 3 months of 2012 was up significantly on the first quarter of 2011 or 2010.

An important note in regard to this data set is that sales are recorded at the date the title change is registered with LINZ. In the normal course of property transactions legal title change must be registered within 3 months from settlement date (although many lawyers these days file online transfers on the day of settlement), therefore it is quite possible that sales recorded by Terralink from LINZ data relates to properties advertised as mortgagee sales anything up to 6 months earlier, even as far as 9 months earlier. That could mean that within the 524 sales for Q1 2012 there could be property that came up for mortgagee sale anytime in the second half of 2011 potentially.

 

Mortgagee Listings

Realestate.co.nz has been recording the data of mortgagee listings on its website since the beginning of 2007. The data has been presented in regular reports on Unconditional. The data is the weekly number of properties advertised on the realestate.co.nz website which the listing agent has defined the property as being sold as a mortgagee sale or auction. There is an obligation for the agent to detail that the property is the subject of a mortgagee sale and often it appears in the headline. In the main properties being sold as mortgagee are sold quickly; as the bank, once listing such a property does not want a protracted process. This uniform listing period ensures the data of listings is a statistically valid view of properties being placed on the market by banks and other financial institutions.

As the chart below shows the number of listings being marketed as mortgagee sales at any one time peaked in 2009 at over 400 properties. Subsequently the number of listings has seen a steady decline.

As of today there are 203 properties on the market classified as mortgagee sales. As a point of note the search on the site for the word mortgagee shows 238 listings, the difference lies in the fact that some of these listings are for land rather than properties.

The key point in regard to the stats on the realestate.co.nz website is that this is recording the active market today for new listings, listing which may be completed in the next 2 months and then registered with LINZ and then appear in the Terralink stats later in the year.

 

Alignment of the two sets of data

Hopefully it is clear that both sets of data are accurate, but one shows a leading indicator of listings, whilst the other shows the following indicator of sales.

There is a point of correlation though. Looking at the last 2 months of 2011 it can be seen that there was a spike of new listings. At the time I referred to this as the continuation of the mortgagee hangover. The deduction at the time was that the increase in activity in the property market could well have fueled confidence amongst banks to list properties that they had on their books. This flush of listings may well have been transacted early in the new year as recorded sales registered with LINZ in the first 3 months of 2012, to therefore be included in the latest Terralink data.

Looking at the latest weekly data comparing week by week to prior years shows the relative activity in new listings of mortgagee properties by agents this year.

 

 

Article Discussion

  1. Nice analysis – I posted a blog post about the DomPost Weekend article during the weekend, also here on unconditional. My blog had a Wellington bent, of course, but my view was consistent with yours Alastair – the increase in mortgagee sales is not a reflection of the market suddenly deteriorating. Indeed, the market in Wellington remains fairly balanced – although it is a two speed market between quality stock and “the rest”. Thanks for your ongoing insight. Adam Cockburn – Wellington Real Estate Agent.

  2. I must correct one factor in your analysis….the proportion of titles that aren’t transferred more or less instantly would be vanishingly small, if any.

    The only ones that wouldn’t are where there is one of the small remnant of paper dealings that needs to go in at the same time, or LINZ need to check over some of the wording submitted with a dealing….and even then the turnaround is no more than a day or two to a week.

    Anecdotally, clients with small businesses are under severe pressure…this year perhaps worse than last year….because long term creditors are finally losing their patience. Even businesses that are notionally making a profit are getting folded up because creditors with power – eg their bank – are sucking dry all of that profit and not allowing any to go elsewhere until IRD or someone else puts them into liquidation…and mortgagee sale follows.

    Although your point about banks listing because of the upturn in the market has some merit, does that not apply principally to Auckland rather than other centres? To me, the number of mortgagee sales still says quite a bit. It’s still a tough ride out there!

  3. Ivan

    Really appreciate that perspective from the legal side of the table – would seem to be a no-brainer for lawyers to file online, thereby streamlining the process.

    The insight into the pressure of small business owners is valuable as sadly many would leverage their family home to support the business and as a result leave themselves vulnerable to a foreclosure if the business fails.

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