Surge in forced sales of property is not as alarming as reported

by Alistair Helm in


Transient

The latest data released by Terralink International shows that the hangover of the GFC continues to impact the property market in the form of mortgagee sales.

TTheir report paints a very dark and ‘bear-like’ perspective with the commentary of Mike Donald (MD of Terralink) stating that “there’s no sign of economic recovery for ordinary New Zealanders”. Certainly the data shows 605 mortgagee sales in the second quarter of 2012 up on the first quarter and nearly identical to the second quarter result for 2011.

As I previously reported on Unconditional at the time of the last set of quarterly data on mortgagee sales, the interpretation of the data of mortgagee sales and listings, whilst both valid measures can be seen at the same time to tell a contrarian view.

The tracking of mortgagee listings as published on Interest.co.nz in one of their excellent interactive charts (shown below) clearly shows that active listings have fallen a long way since the peak of the financial crisis.

Now there is no doubt as was reinforced by Helen O’Sullivan CEO of the Real Estate Institute, commenting in the NZ Herald article, that part of the reason for sales remaining active whilst listings are falling is a function of the more active property market which is allowing banks to more confidently offload liability assets in the form of mortgagee properties.

However I think the Terralink data and commentary should be examined more closely. The headline in the Herald read “Mortgagee sales near 2009 levels”. Well the chart below which tracks the sales data for each quarter since 2008 clearly shows that despite the first quarter of 2012 being a very active time for the sale of mortgagee property the increase between Q1 and Q2 of this year bears no relations to the trend witnessed in 2009. It is far more likely that 2012 will end up looking more like 2011 than 2009.

The other comment I found interesting in the Terralink report was the statement that “There’s no good news here for so called ‘mum and dad’ property owners.  With properties that are likely to be family homes making up almost a quarter of sales, there’s no sign of economic recovery for ordinary New Zealanders

That statement and situation is actually nothing like as grim as the statement that followed the release of mortgagee sales data for June 2009 which stated that when it came to "mum and dad" type homes. "In June, that proportion doubled jumping to 39 percent of all forced sales”. I would judge 25% of the 2012 Q2 data is a lot less than 39% of the same period in 2009!

Whilst none of this is light reading for anyone burdened by such debt; the fact is come recessions or boom times people suffer from overleverage either on investment property or the family home. They may unwittingly become the victim of external factors – all such circumstances contribute to the background fact that mortgagee sales are not exclusively the domain of a recession; they are part of modern life just as are bankruptcy and other outcomes of capitalism at work.