The Unconditional Blog

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The property market’s tightness of new listings may soon be over

Posted on: February 19th, 2012 | Filed in Buying / Selling a home, Featured

The consistent message through the past 6 months for the supply side of the property market has been a shortage of listings. That shortage is likely to ease in the coming months.

This forecast is based on extensive analysis of the property market cycles of sales and new listings – the two key metrics which reflect the demand and supply side of the market.

The property market as with most markets moves in cycles. The recent 5 years has seen a significant re-adjustment, as the heady days of the early part of the last decade when property sales topped 120,000 in a year, have been replaced by the more sobering reality of a market seeing in the past 12 months sales of just 60,000 properties.

The property market as reported in the monthly NZ Property Report is very much influenced by the levers of supply and demand. Through the comprehensive data from the Realestate.co.nz website we have been able over the past 5 years to track the supply side of the market – the number of new listings that come onto the market each month. Matched to this, is the demand side which is reflected by the number of property sales per month as reported by the Real Estate Institute (REINZ).

Looking back over the past 5 years, in an average month around 11,500 new property listings come onto the market whilst around 5,200 properties sales are transacted on average per month. The balance of new listings either remain on the market thereby adding to the existing inventory as property takes longer to sell, or in the majority of cases properties are withdrawn to perhaps be relisted later.

Recent analysis we have undertaken shows that the cycles of property supply and demand does not follow in perfect alignment. The chart below has been developed by tracking the 12 month moving average of new listings and sales from the start of 2000 to the end of 2011 in the case of sales (blue line) and the past 5 years since 2006 in the case of listings (red line). It clearly shows the similarity of cycles, but equally shows a timing delay as the listing’s market lags the sales’ market.

(Note: the chart has different vertical axises – in the case of sales: 3,000 to 11,000; whereas for from 8,000 to 18,000. This presentation has been chosen to provide an alignment of the data points to better highlight the correlation between sales and listings)

Looking at this most recent 5 year period, the supply side cycle tends to lag the demand side cycle by around 6 months. That is to say that the actions of sellers seeking to list their property tends to lag the ups and downs of property sales. This is highlighted by the horizontal arrows tracking each of the peaks and troughs of this 5 year period.

This would infer that sellers judge their intent to list a house by a view of the level of recent sales – probably witnessed by “Sold” signs and media commentary. This lag is likely to explain why the market often gets over supplied even after sales have slowed; and as we have seen recently, sales are picking up whilst new listings remain low.

This current situation where property sales are rising faster than new listing is shown on this chart by the blue line intersecting and rising ahead of the red line of listings has occurred once before,albeit for a short time in 2009. That occurrence as a fall out from the global financial crisis lead to a significant build up of inventory as sales fell sharply through 2010.

So having undertaken this analysis I expect that the next question on everyone’s lips will be “Given that the analysis shows a correlation and a distinct cycle – what can this tell us about the expectations for 2012?”

The chart below takes a view based on some core assumptions as to how the next 12 months may look.

The first assumption is that the trend of property sales is likely to continue, albeit at a modest pace. In 2011 just over 60,000 properties were sold, for 2012 a 12% increase would see sales of 69,000 – a level that based on the historical long term average would not be too optimistic. With this slow rise in sales the likelihood is that the current rate of new listings will rise to a higher level as has been shown to happen in the past reflecting that 6 months lag effect. This extrapolation as shown in the chart would see around 142,000 new listings in 2012, up 15% from the 2011 all-time-low of 124,000.

 

 

 

Article Discussion

  1. February is usually a strong listing month, however this year at least in the Pt Chevalier, Westmere and Grey Lynn areas there have been very few new listings hitting the market and when they do they are usually selling within a week. Forward listings for March also look like being low in these areas so probably going to remain a tight sellers market around here for some time to come.

  2. Ross

    Great to have the local perspective as it is often stated but not often appreciated that the real estate market is an aggregation of local markets – some 3,500 suburbs across NZ – what goes on in any particular suburb may be contrary to the national and even regional picture due to local factors.

    As we look at the figures of listings uploaded so far this month (we are here on the 22nd Feb) with another week to go we have a total of 10,329 new listings so far – based on our calculations that will result in a total for February of around 13,500. Now last February we saw 11,395 listings which was down 20% on Feb 2010. So it looks like after a year-on-year growth of just 3% in January we will see an 18% growth in Feb. That would be the highest year-on-year growth in new listings for any month since March 2010.

  3. Jason says:

    amazing that a week later on from this comment, one that the national press of new zealand have picked up on and extrapolated on, there’s just one comment. maybe that just goes to show how many people in New Zealand are currently interested in the real estate proposition?
    Although I am commenting from a distance, it would seem that most Kiwis are happy to sell there most productive land to overseas interests.
    Do Kiwis actually realise they are sitting on the “GOLDMINE” of mother earth!?!?!?!??
    Overpopulation will come to pass in future years and if my thoughts are right, they’ll just show the importance that a land of gold & honey…..ooophs I meant to say a land of water, space, and food can produce.
    Man tell me what would happen in NZ tomorrow if forestry was to be replaced with market gardens….hmmm…have we got the space!
    What a joke…..well thats the question I feel I I am asking…..
    I’m currently helping an off-shore seller in Israel to sell her property in NZ (factoid – ISRAEL fits in to NZ over 10 times) and that vendor has expressed her oen opinions on how Kiwis are such a “soft target” in the world of property.
    What can I say … WAKE UP NZ!
    Do not believe what this article has to say “ver-bot-im” because there are too many parts of NZ that experience a complete “upheaval” from these quoted figures. All I can say is “do your research.”

  4. Ross Brader says:

    The latest Quotable Value quarterly property report is out today (5th March 2012) It’s a 24 page report contained within the NZ Herald and provides full suburb average price breakdowns and comparisons with the former peak in November 2007.

    Many suburbs have now well and truly exceeded the previous peak including Westmere by $108,833 and Pt Chevalier by $82,445.

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