Seven weeks ago the headlines started to sound ominous warning bells – Meltdown on Wall St – shades of October 1987. What followed was an alarming tsunami of economic news which has undeniably impacted consumer confidence and shaken financial institutions. It is no surprise to learn then that interest in searching for property has equally been significantly impacted by these intervening weeks of somber news.
Earlier this year in a post entitled “Media seriously impacts the psyche of NZ’ers when it comes to property” the correlation was shown between the media headlines and visitor traffic to real estate websites. Well with the benefit of 7 weeks of tracking analysis the same metrics can highlight in the graph below the direct correlation of consumer confidence and incidence of property website viewings during the recent exceptional period.
As can be seen when viewing the tracking of website visitors to this “basket” of 7 real estate websites for the year to date of 2008 in red – a promising early start to the year was shattered as interest rates spiked and property sales ground to a halt with speculation of a major crash in the market.
From a healthy peak in the early months of the year far above 2007 levels, the traffic volume slipped to below 2007 levels by April and so began a 4 month period of flat visitor traffic at 2007 levels – until in mid August the first signs of spring started to appear and traffic started to build and broke free of the doldrums of 2007 levels. But then as sure as late spring frosts appear to wipe out early blossom so the credit crisis froze out consumer confidence and the level of traffic slipped back and for the past 5 weeks has been showing all the classic signs of “flat-lining”.
Not only is general property searching impacted by the credit crisis but very active searching for mortgagee property has also suffered the same degree of nervous apprehension by would-be-purchasers. The graph below tracks number of searches (blue bars) made per month on realestate.co.nz for the word mortgagee since the start of 2007 matched to the quality of listings (red line) on the site identified as mortgagee.
The peak of searching in April was influenced by some significant media coverage of the subject area and the reference to the website, however since then whilst inventory has grown the level of searching has come back somewhat and has shown in a “perfectly paralleled” visual to the graph of web traffic the same eerie “flat-lining”.
These graphs analysing website activity on the most comprehensive real estate website provide a valuable insight into the lead-indicators of the market for property. The data expected within the next week from the Real Estate Institute (REINZ) will report the sales for the month of October which could show some potential impact of this credit crisis; however given the lead time of purchase intent to unconditional sale the full impact may not be seen until the November or December figures. I wait with interest to see these latest figures.
I interpret the fall in mortgagee sale searches as a very ominous sign for New Zealand property. One would think it would increase on the back of the credit crisis media exposure.
Raro,
An interesting comment. If I interpret you correctly you are surmising that things are so tight from an economic / finance / confidence perspective that even mortgagee properties cannot awaken the sleeping dragon of property buyers.
An alternate interpretation could be that the limited range of mortgagee properties which are not ultimately seriously distressed sales have exhausted the little interest there was and this group of well funded ready-to-act buyers are merely being alerted by daily email alerts which keep them appraised of new listing rather than them constantly searching? – the truth is the data provides a picture of activity – not a definitive answer to what lies behind the activity!
I am one of the ‘ready to act buyers’ and am spending my time reading various blogs and keeping up to date with the tone of the market rather than searching for specific properies. Perhaps there are others like me out there. I certainly hope that buyer confidence is not the reason for the slide in activity.
Alistair, what are the implications for the realestate industry from a change in government?
Raro,
I think the incoming government’s focus will be the economy – to sort that out will provide opportunity for real estate in the long term.
I do not think that in the grand scheme of things they will be looking at the new Real Estate Agents Act given its passing into law back in September. There are aspects of the Act that will be lobbied rightly to be amended – like the inclusion of property managers.
So I sense personally more of indirect influence.
My colleague is having trouble servicing her mortgage and asked me if she should sell her house back in NZ. The rent ($300 per week, already high) needs to be topped up by $150 per week from her Rarotonga teaching salary ($43000) of $650 per week. The house was bought for $220000 four years ago and has a current G.V. of $250000. Her agent believes the house to be worth $190000 given market feedback from open homes. To sell at this price will leave a remaining debt of $30000 and nothing to show for it. This situation highlights some of the realities people are starting to face. Is it better to cut ones losses and only loose $30k ?
Im not an expert but i see it as $30k plus agent fees thats if some one offers her $190,000…closer to a 40k loss …Lots of people out there in the same situation…
[...] usually comes a fresh clutch of listings onto the market and a pick up in buyer interest. The commentary reported last week showed the impact on buyer confidence of the credit crisis which began in September and at this [...]
If she has trouble making the payments, I would say, let her stop and foreclose. No need to pay off 30,000.
I should point out for the benefit of other readers that I think Hans is from the US. Whilst not being an expert on US laws I am aware that their foreclosure and bankruptcy laws are somewhat different to NZ – allowing people to hand back the key, default on the mortgage, take a hit to their credit score – but not be held liable to their debt. NZ is vastly different so the advice is not so relevant.
The question posed by Raro interests me. My interpretation of the situation is as follows:
The property would owe a debt of $30k based on a value of $190k, and it was bought 3 years ago for $220K – this means that the property was bought with an interest only mortgage of 100%. Taking an average of 8.5% interest on the principle means weekly mortgage payments of $360 per week. This calculation tells me that this was not a great investment decision – the operating return is negative and everything is predicated on asset appreciation – not that wise I would suggest.
Yes, it is true I am from the US, but a mortgage is a mortgage right, i.e. the debt is secured by the property. Are you saying that the lender has a right to claim more, beyond the property in case of a default?
The house evolved into becoming an investment property due to accepting a job in the cook islands. Whilst on a NZ teaching salary and actually occupying the house the investment was probably sound enough over the long term. As a rental the numbers certainly dont stack up and is unafordable on a cook island salary. Her choice obviously but now decisions need to be made. My advice to her was to return to NZ, get flatmates for a year and throw a good portion of a NZ teaching salary at the debt until it becomes cashflow positive, then go travelling. But if she decides to sell, is it better to realise a $30000 loss now, what might it be 12 months down the track? Should she get an independent valuation? another agent? 250000 gv is a long way from 190000 market feedback.
I don’t believe it is appropriate to give advice in this circumstance, all I would say is every property is unique and the circumstances of the market at the time will best predict the worth of the house – a GV / Ratable value is only an indication of valuation – never as accurate as a registered valuation undertaken by a skilled professional.