The Unconditional Blog

The impartial voice of the industry

 
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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%.

 

 

Article Discussion

  1. 2012 should be a stellar year for the real estate market in Auckland City with interest rates likely to remain at low levels and more homes available for sale as prices recover to levels well above the previous peak of 2007. 2011 finished with the best December volume since 2006 and prices in the old Auckland City Council area are well above the previous 2007 peak.

    In our own office 2011 was our best year ever and culminated with a frantic week prior to Christmas receiving offers on several properties and finishing the year off on a high note and strong levels of activity continuing into the week between Christmas and New Year with offers received and second looks through homes.

    Our first three listings of the 2012 year each had over 100 people through in the week one and all are now SOLD with multiple offers presented at levels well above the 2011CV. We need at least another 20 to 30 Pt Chev, Westmere or Grey Lynn bungalows or villas in the $700,000 to $1,200,000 range ASAP as we have a massive volume of cashed up registered buyers just waiting for us to offer them more new listings.

    There year ahead is looking very positive indeed!

  2. I concur with Ross, the end of 2011 was flat out with many buyers making up for time spent in Sept/Oct in front of the TV watching rugby. My market in north Wellington is still showing signs of a lack of listings, and though the market is only easing back to life this week, if things don’t change and a bunch of new homes come into the market for sale very soon, it will be a short term sellers market. bring on more good weekend weather and young first homers.

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