The Auckland quarterly property review - Q1 2018

by Alistair Helm in


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Having summarised the broad New Zealand property market for the 1st quarter of 2018, it is critical to examine separately the Auckland property market.

Auckland is a very different market to the rest of the country by fact of scale and greater international influences. Additionally Auckland tends to be a bell-weather to the broader regional market, thereby investigating the local market trends provides insight both for Aucklanders and as a future indicator for the rest of the country.

As far as volume sales are concerned it appears from the latest March data to the end of this first quarter of the year, that we seem to have bottomed out. Sales of properties have been falling for close to two and a half years. Seen on a 12-month-moving-total the Auckland market peaked in October of 2015 and has fallen in volume terms consecutively by 37% since then to the current March 12-month-total of 21,350 sales. We do seem to have avoided dropping below the 20,000 sales a year threshold experienced through the GFC and the rebound in 2011.

The chart below tracks the monthly variance for a year-on-year comparison of Auckland property sales for the past 18 years. It is clear looking at the chart that the market experiences significant volatility in sales movements in Auckland, up over 50% year-on-year at times and equally falling by similar variances. Since that peak in October 2015 the variance has been consistently negative with just couple of months where there was a small correction. As noted in the wider NZ analysis the March month this year did see a surprising fall year-on-year in sales but this is not unusual as can be seen in prior market cycles of the past 18 years.

As I have mentioned many time in the past in the context of property market commentary, a critical issue in NZ analysis of property sales is the number of dwellings and how that has grown over time. In the case of Auckland, hardly a day goes by when the media does not refer to the 'shortfall in housing' affecting the city - whether that shortfall is 20,000 or 50,000 the fact is Auckland has grown at a staggering rate over the past 25 years. 

Based on the trending of the last census data it is likely that Auckland now has surpassed 500,000 dwellings - this is up from around 445,000 10 years ago. This growing level of new dwellings naturally will be a factor in assessing the true level of property sales. Tracking this over the past 10 years further reinforces the market view that we are bottoming out of the cycle at a low level of 4.3% of all homes being sold in the past 12 months, this compared to a 10 year average of 5.4%. The broader NZ position interestingly is that 4.5% of all homes were sold in the past 12 months as compared to a 10 year average of 4.7% emphasing that the Auckland market has fallen in volume terms further than the rest of the country.

As I have often stated I am of the belief that watching closely the sales volume trend is a better indicator of the state of the property market than following the median price, as price is largely a reflection of the state of the market rather than an indicator. This is best demonstrated by the chart below. This analysis which I introduced a couple of months ago tracks the clearance rate to the median price movement. Clearance rate is the relationship between the new listings coming onto the market in a 12 month period of and number of sales.

This latest update to the Auckland chart of Clearance rate to median price shows again evidences the bottoming out in the clearance rate and the start of some degree of increase in the past 4 months, whilst at the same time the median price variance year-on-year is showing an arresting of the fall seen in the past 2 years with the current situation seeing median price level or slightly down compared to this time last year.


The NZ quarterly property review - Q1 2018

by Alistair Helm in ,


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The first quarter of 2018 is now behind us and with it the final month of the financial year. It is interesting as an aside that this last month of the financial year, through no direct result of any promotion or marketing by this industry towards the consumer, typically ends up being one of the biggest sales months of the year. Sure it's influenced by seasonal considerations but their is no denying the fact that incentives within the industry do bring more properties 'across the line' into March than would be the case without these incentives.

With that as a backdrop it is a good stage of the year to examine the state of the market from the available published data from both Realestate.co.nz and REINZ.

I always like to start any property market analysis with sales volumes as this for me is the most important driver. The Median Sales price whilst the headline of all property news articles is largely an outcome of the market, the result of the pressures of the market; but the number of transactions indicates the real health of the market.

Across the whole of the country, sales volumes have been weak now for what is close on 2 years. As the chart below shows, the market year-on-year variance dropped into negative territory nearly 2 years ago in July 2016. 

In the middle of last year after 12 months of declining sales we started to see the rate of decline ease off, and as we reached Christmas, year-on-year sales were pretty close to level with prior year. This was followed in January and February of this new year by very slight rises year-on-year, but then March seems to have hit us and we are back year-on-year to a 9% decline. This is why I made the comment earlier. I had expected that March would have been stronger than it was. For whilst comparing the same influence on the market last year, 9% decline after what has been very low sales volumes is surprising and has that feel of a 'late spring frost' arresting the early new spring growth.

Yet despite this 'snap of frost', it is my view that we are still likely to see sales volumes rising through 2018 to end well ahead of 2017. The most recent 12 month total sales volume to March was exactly 73,000 as reported by REINZ. This level of sales is almost identical to the low point of the last cycle in October 2014 before the upswing in sales that lasted for the next 18 month as sales rose to a 12 month moving total of 94,000.

When examining property sales over a long term perspective, a key influence that has to be factored into the analysis is the core underlying growth in the number of properties across the country. Twenty five years ago back in 1992 when REINZ started collecting and publishing real estate statistics there were just under 1.2 million properties across the country and in that year total sales amounted to 63,000. At the end of 2017 there were an estimated 1.63m properties, an increase of over 435,000 properties, up 36%, whilst total sales in the 2017 calendar year was 73,557, an increase of less than half that of the growth of number of properties. Property sales have gone through around 8 cycles in those 25 years reaching a all time high of 121,777 in April 2004 and an all time low of 53,463 in February 2009.

These highs and lows of the market have represented, a proportion of sales to actual dwellings with a high of 8.4% and a low of 3.5%. Across the past 25 years the average has been 5.7%. Over just the past 10 years the average has been around lower at 4.7% with the current level of the 12 months to March 2018 at 4.5%, certainly below the 10 year average and the longer term average. This further reinforces the view that the market is lower than would be expected.

Complementing the sales component of the market assessment, I am keen to examine the latest data of the clearance rate. This metric I introduced back in January when assessing the year-end data for 2017. It is the measure of sales as a % of listings applied to the latest 12 month moving total.

The picture for clearance rate which as I demonstrated back in January tends to track pretty consistently to median price movement over the years. Looking at the most recent 3 months the clearance rate appears to have arrested its decline and similarly the annual median price movement has stablised at around 5% allowing for the monthly volatility.

Taking all these data points into consideration it looks to me that we have reached the bottom of a cycle of property sales. Given the scale of the current residential dwellings at a level of 1.63m, a sales level of 70,000 is a low point and over a forthcoming period of what maybe 2 to 3 years we will likely see sales rise up again to an expected level of around 90,000. This assumption is predicated on the belief that a sufficient flow of new listings will come onto the market to facilitate this lift in sales, for without this, the latent demand will be unsatisfied and that has the potential to stall the market. 

 


So.. should I wait to list in the Spring?

by Alistair Helm in


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Sitting in a recent sales meeting of our local office the other day, the discussion came around to the pipeline of forthcoming listings. The one consistent comment emerging from around the table was the client desire to "wait for Spring". I have long heard this view that Spring is the best time to sell, but is it really?

Spring may well be the busiest time for new listings, but is such a cluttered and contested market the best time to grab and fight for attention?

This question and the data to support the opposite view is something I have written about in the past, but I thought it was about time to revisit this matter for the benefit of buyers, sellers and my new colleagues in this real estate industry.

From a statistical point of view the way to assess the seasonality of the property market is to create a picture of weighted average sales for each month, based on the historical sales by month. This is the approach I have taken in the past. However when updating my spreadsheet it did strike me that this approach was somewhat "rough & ready". After all, months have different number of days, especially when you allow for the major public holidays. So I factored this in to created a weighted average sales per day for each month and then expressed this in the chart below as to the variance that each month represents as compared to a "normal month".

This charts shows that the most active month of the year in terms of sales is March with January the least active. October is the month which could best be described as 'average'. The overall trend is that the most active sales period is February to May. The winter months through to September are quiet and then November comes storming back before December sees sales tail off. Nothing surprising in this I would have to say. As a note this data is total NZ sales from the full data set of Real Estate Institute statistics from 1992 to 2017.

In doing this statistical analysis, as very often happens I questioned the data to see if once you broke up the data for the full 25 years into separate 5 year periods, if this pattern has changed in any significant way?

This then is the same analysis but showing each of the five 5 year periods from 1992 to 2016.

This analysis I find very interesting (but maybe I am the only one!) - the key months for me are January, May, July and December as these to my mind are demonstrating a valid statistical trend.

January is very clearly becoming a much quieter month. In the most recent 5 year period (2012-216), a period in which sales have been buoyant, it has been close to 30% quieter than a typical average month. Why? Well it could be a factor of lifestyle and people really wanting to enjoy summer and not worry about buying or selling a property. However I believe the real estate industry has begun to see the need to manage their business better, and so establish campaigns that culminate with sales pre-Christmas or wait until the end of January and in so doing leave January clear for vacation. 

The month of May is very clearly becoming a more active month with a successive shift from being the 5th quietest month back in the early 90's to being the 3rd most active month of the year in most recent times. Why? I suspect that the earlier statement about how January has become less active has shifted the summer marketing campaign period well into May.

July has like May, become a more active month, however it is still the 3rd quietest month of the year.

Finally December has become less quiet, this coupled with a slight lessening of the activity in October would possibly indicate that the traditional Spring market activity is getting later and the lead up to Christmas is as active as the main month of November, especially as it lends itself a settlement and house move in the best of the summer days in the new year. 

 

Back to the matter of is Spring the best time to sell?

 

To really assess the best time to sell, you need to look at both the listings and sales by month to picture the seasonality. Statistics for listings only go back to 2007 via Realestate.co.nz and their NZ Property Report, so I have adapted the seasonality of sales chart to measure the past 11 years. So here are the charts based on this 11 year period for sales and listings.

These two charts have the same identical axis scale of -25% to +25% and the first thing that strikes you is how much more volatile listings are in terms of seasonality. There are only 5 months of the year when listings are more than average (Feb/Mar/Apr/Oct/Nov) with 7 below average, whereas sales are split 50/50. For sales there are only the two months of January and March when the variance to the average is greater than 10%, whereas for listings there are only 3 months when the variance is less than 10%.

A better way to view this mirroring of supply and demand is to line up the two sets of data on a single chart.

This is the chart that best shows the challenge of when to list a property for sale. If you hold by the adage of being a 'big fish in a small pond' then the best time to list is during the winter when listings drop off far more than sales drop off.

If you wanted to call a single month then December would be the winner. The differential between listings and sales is 16 percentage points, closely followed by May at 13 percentage points.

The worst month to list based on this analysis is October where the differential is 17 percentage points. This would therefore seem to completely quash the notion that the best time to sell is the Spring, certainly a deluge of new listings hit the market in the Spring but based on the latest 11 years of NZ sales data, September and October are actually quiet sals months with November being the single active month of the Spring.


Online Property Valuation Models – how accurate are they?

by Alistair Helm in


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As might have been anticipated, my recent article providing a guide to the current portfolio of providers of online property valuations models triggered the inevitable question – "just how accurate are they?"

So I thought I would do some desk research. However before I unleash a barrage of criticism stating that there are heaps of examples where the Automated Valuation Models (AVM’s) are so wide of the mark to make them laughable, let me simply say this. There over 1.5 million AVM’s or potential AVM's for NZ properties – there will always be outliers and extremes. I do not have time nor patience to review thousands of properties, or even hundreds of properties. I chose to select just 12 properties.

The method I have used, is to track the latest auction results as published by the team at Interest.co.nz as the auction year started after Christmas. I simply took the first 12 I saw which comprised 8 properties in Auckland and 4 in Tauranga. So again I acknowledge that my sample is hardly representative nor truly random. It is made up of auction sales only, the sales are only for those 2 areas of the country and represented a very quiet period of the year.

With these 12 property sales results I went to each of the 5 providers:

I knew none of these providers had updated their valuations to take account of any of these actual 12 sales neither would the sale records have been picked up through local council sales or agent reporting so there was no bias of an AVM being influenced by these recent sales.

Another point to note is the analysis compared the sale price at auction to the mid-point of the price range of the AVM.

So here is the table of results. The colour code used is blue where the AVM equalled the sale price exactly, red signifies an AVM below the sale price with green where the AVM is above sale price. Finally, grey indicates that the provider had no AVM for the property.

As you can see, the visual skew towards red indicates that based on this sample set most AVM’s were below sale price.

The original version of this article I used an average variance measure, after receiving valuable feedback I have now used the calculation of Gross Median Error.

All providers achieved a gross median error of less than 10%, with Realestate.co.nz achieving less than 5% which is impressive. I would deduce that a factor in their accuracy, is they benefit from the very latest REINZ data each month of unconditional sales, whilst all other provides rely largely on settled sales which come through at least a month to 2 months later.

Another perspective I was keen to examine in respect of the accuracy of AVM's was the indicative range they provide to reflect the level of confidence. For each provider, for each property I assessed the range as a percentage of the midpoint price.

This analysis is very illuminating. The provider with the tightest range (in theory indicating confidence factor) is MyValocity, closely followed by Homes, both just under 10%. This effectively meaning that their AVM range is 5% below the midpoint to 5% above which I would judge as fairly acceptable given this is a computer based estimation with no detailed knowledge of the specifics of the property.

Of interest in this analysis is the very wide margin in the range from Trade Me Property at close on 30% with their tightest range being for a single property at just 19%. Similarly Realestate.co.nz seem to apply a standard c.21% to all AVM’s.


For completeness here are the raw numbers

 


Asking prices and selling prices - a comparison that points to new metric

by Alistair Helm in


I read with interest a joint report by Realestate.co.nz and REINZ (published last week)  “New Zealand Property Report – asking & selling prices - a comparison”. The report states that based on analysis of property sales and property listings in the second half of last year – the median absolute difference between asking price and selling price was 2.67% nationally. That would mean that based on the most recent median sale price of $550,000 the median difference was just $15,000. Clearly indicating a very accurate estimate by agents of likely selling prices.

The report published this chart of asking price to sale price tracking the past 5 years.

I must confess for a couple of minutes I was somewhat confused, as I made the mistake of assuming that what this report had done was to track the monthly asking price as reported by Realestate.co.nz in their monthly NZ Property Report and the monthly REINZ median sale price. The chart for this set of data looks somewhat different as you can see.

The variance of national asking prices vs national sale prices is more like $100,000 as opposed to $15,000. This amounts to a 20% variance as opposed to the reports 2.67%. I then read a bit deeper into the report to understand why I had been confused and thereby explain the significant difference between these two seemingly similar data sets.

This new detailed joint report is based on the relationship between asking price and sales price where a price has been displayed when the property is listed for sale. So the data comprises just those listings where the property has been marketed with a price by the listing agent, thereby excluding all listings by auction, tender, or simply those for which no price is displayed.

Out of interest based on the current portfolio of all listings on the market at this time – the sample set in the report of properties where a price has been displayed when the property is listed for sale is by far the largest subset of properties on the market amounting to 61% of all listings. Some 16,877 from among the 27,643 properties on the market. This data is very helpfully provided on the Realestate.co.nz website under the Advanced Search on the Classic site – unfortunately another weakness of the proposed new website which has no such Advanced Search function.

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Being an analytical person, I began to wonder what this data point of median absolute difference between asking price and selling price was? – was it the amount of the variance of the median asking price to the median sales price for all the listings over that 6 month period? Or was it the median of all the variances between the asking price and selling of all the listings over that 6 month period?

I hope I have not confused you yet!

To hopefully help explain, here are a random set of fictitious data point to help explain my questioning:

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These 7 properties represent a fairly wide range of prices. The median asking price is $650,000 and the median sale price is $635,000 which relate to property #3. In choosing this fictitious group of 7 properties I have reflected sale prices that are both above and below the advertised price as I assume the listings that feature a price include both those with a price, as well as listings that feature the prefix of “offers over $xx / Buyer interest form $xx / Buyer enquiry over $xx”.

However as you will see the median absolute variance of this data set of 7 properties is not the ($15,000) from property #3 but is ($5,000) from property #4 – with positive and negative variances the median gravitates to a midpoint which in this case is close to zero especially as the extremes of variances are $70,000 below and $55,000 above asking price.

I therefore have to ask – is the use of median absolute variance appropriate?

An alternative data analysis could be to use the mean as opposed to the median. As detailed below the mean asking price to sales price for the same set of properties is $12,000 representing a 1.3% variance as opposed to the 0.9% of the median absolute variance.

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Aside from this question I have with the data point chosen for the analysis, I commend Realestate.co.nz and REINZ for this report. The takeaway is that where properties are marketed with a price; the price chosen at the recommendation of the listing agent is likely to be a very close approximation to the likely value of the property at the time of sale. This is valuable for buyers who often feel they are in the dark regarding prospective value of properties.

As a proposal for these two organisations I would like to recommend an extension of this one-off report. I feel it would be of significant value if Realestate.co.nz started to report this new metric of asking price for new listings that are marketed with a price. Tracking this by region by month as well as backdating data to 2007 would be really valuable extension to the NZ Property Report!


Making sense of online property valuation models

by Alistair Helm in


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Having cited the democratisation of property data as the most significant event to occur in the real estate industry over the past 3 years, I thought it would be a useful follow up, to provide some insight and perspective as to this new world of more accessible property data and by so doing provide more context as to these estimated valuations as compared to traditional valuation providers.

I do also propose in a follow up article to review each of these new providers and assess their relative strengths and weaknesses.

There are currently I judge five key players in the market offering online estimated valuations for NZ property. These are Homes, Trade Me Property, Realestate.co.nz, MyValocity and QV (a note, QV only provide a free estimated valuation model on their mobile app – their website still requires the purchase of an e-Valuer report at $49.95 per property).

All of these operations provide a free unlimited online automated valuation on pretty much all properties in NZ. Well actually not every property. The fact is all of these providers recognise that without sufficient proximate data from which to compute their algorithm they cannot attribute a reasonable estimate to every property, so not every property will have a valuation estimation. It is likely that the more remote the location, the more rural, the less frequent the number of local sales the less likely there will be for a estimated valuation.

Let me expand upon this as an insight as to how these Automated Valuation Models (AVM) work. Each of these companies leverage the now easily accessible massive computing power that only a few years ago was the reserve of major corporate and government agencies. The likes of Amazon Web Services, Google Cloud Platform and Microsoft Azure to name but a few, which offer massive computing capacity just when you need it – in this case allowing these local companies to rent a couple of hours of grunty computing power to run algorithms that analyse the impact of all recent local sale records for all properties. This is basically how the algorithm works. Each property record is assessed against recent sales of similar properties (similar by standard metrics of for example number of bedrooms, size of property being the two most important).

The key data point here is recent sales; the more recent the sale, then the more accurate the estimation. Naturally there is a lot more sophistication in each company’s algorithm than I have outlined here, including self-learning tools to assess the system’s accuracy by effectively going back and estimating a property sale before the actual sale is confirmed and then reviewing actual sale price against estimation.

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AVM’s tend to be displayed on these various platforms as a price range with a mid-point. This is the result of statistical convention rather than a true sense of a predictive range. In my view look at the mid-point of the range as an indication of the AVM rather than the upper price! A range can often be as broad as 15% or even 20% either side of the mid-point which at times makes them seem very inaccurate. The fact is, the computer algorithms compute a single figure together with a confidence factor which then drives the scale of this range.

That is the complex part of Automated Valuation Models (AVM). The key question though is, can you, and should you, trust these estimation valuation models in the marketplace as a guide to better inform you as to an indication as to the likely selling price of a property?

Before I go into that, it is really important to lay out the difference between a number of data points that you are likely to come across in terms of assessing the value of a property. I have detailed below the 5 valuation data points in descending order of accuracy.

The Selling Price – this is ultimate statement of the true value of a property. This is the price at which a willing seller accepted an offer from a willing buyer. This valuation is 100% accurate, but at the same time ephemeral, as it is a moment-in-time judgement and will never be repeated because circumstances with the property market at a hyperlocal level change all the time.

A Registered Valuation – this is the most accurate estimate of a property's value and that is why it is insisted upon by banks and lending institutions who are prepared to take on the risk against which they lend. Registered Valuations are undertaken by a professional valuer, a person who has undergone extensive training and education spanning many years. Such valuations, often cost many hundreds of dollars. Registered valuers use recent sales and local knowledge to provide a very detailed written assessment of what a property is worth in today’s market. There is also professional indemnity that lies behind the valuation report.

A Real Estate Appraisal – a licensed real estate professional will provide a client with an appraisal as to what a property would expect to fetch in today’s market. Under the guiding rules of the Real Estate Agents Act 2008, it is a requirement that a salesperson provide a client with such an appraisal before signing an agreement to list and market their property. Such appraisals need to identify a price or a range, ideally not exceeding 5%. Such an appraisal is computed using a comparative market assessment of what properties of similar size and features have sold for recently. Additionally an appraisal will look at the hyper-local market conditions of supply and demand which a local agent is uniquely able to assess.

An Automated Valuation Model – as outlined above this computer based model is undertaken by the leading five online providers and is based on raw data with no human intervention or local insight.

A Rateable Value – this is a valuation developed for local authorities and undertaken every 3 years in order to provide a benchmark upon which local rates can be assessed. The Rateable Value is judged to be the likely selling price at the time the assessment is made and therefore this estimation decays pretty quickly afterwards. Largely the model used by the providers of this service for the local authorities matches the computer based AVM.

As a prospective buyer or seller the question is, which of these data points should you look at, when and why? Here is my opinion.


What a property seller should do?

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If you are looking to sell a property it is very useful to keep an eye out for local sales results – many agents nowadays will provide such report at open homes, and of course Homes / Trade Me / Realestate / MyValocity can provide this data although not all provide email alerts of recent sales in your area (Homes does a great job of this). In addition, it does no harm to review the AVM estimate for your own property, it’s a valuable guide. Again Homes offers the ability for you to ‘own’ a property record and receive monthly emails of the latest valuation and market trends.

When you are ready to go to market with your property choose your licensed real estate salesperson and get them to provide an appraisal which will give you their valuation estimation which will be most likely based on selected comparable recent sales of properties that best match your property. Their appraisal report will identify these comparable properties thereby allowing you to discuss and debate the merits of your property versus others. This appraisal is the best indicative valuation you can get without investing in a registered valuation.

The estimated valuation in an appraisal will be either a single figure or a range and in this case best practice says that the range should be no more than 5% overall, which means between 2.5% above and below the mid-point. So for example a range of say from $535,000 to 560,000 would be acceptable.

The appraisal you receive may utilise a couple of well recognised models as well as comparable sales. These being net rate / replacement cost or capitalisation of income. I won’t dwell on these other methods here, aside than to say a professional real estate salesperson will used their skills and knowledge to arrive at an estimated valuation that is the best in the market.


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What a property buyer should do?

If you are looking to buy, I would recommend the same approach of keeping a watchful eye on local sales and see what properties, like the one you fancy buying are selling for. Certainly, review the online service providers to see what the properties that come on the market are valued at based on AVM’s. Trade Me is great at this, in providing a link from most listed properties to the AVM on their Property Insights section.

I would recommend that when you get closer to the decision-making process of buying you chat with the agent for the property you are interested in, and discuss with them the view they hold as to price range and how that may differ from the AVM online – they will be only too keen to share the reasons why they view that their price judgement is more reflective of the local market conditions. Listen closely as they are working every day in the market and their insight is critical.

If as a buyer you require finance on the property you choose, you will likely need a registered valuation as the bank or lending institution will insist upon it, however I would take that lead from the lender rather than rush into requesting a registered valuation before you are certain on the property purchase. Remember obtaining a valuation as part of the financial conditions of a conditional offer for a property is perfectly acceptable.

The one estimated valuation I have omitted to mention in this process is the Rateable Value. The role of the RV has now finally gone. It can finally be ignored and retired from the lexicon of property transactions – interestingly something I suggested back in 2013!

 


Property price trends – a new analysis

by Alistair Helm in


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I recently examined property sales and listings data in order to measure the clearance rates in the property market as a means to better understand the signals within the market as to trending patterns. In the same vein, I have now turned my attention to property prices as measured in the monthly median sales price by REINZ. This data set has a 25 year history, providing a rich period for analysis.

The graph depicting the past quarter of a century is probably well known and understood by those who follow the market.

Over these 25 years, the median price has with the exception of a few pauses and a single period of decline, edged inexorably upward from the starting level of $105,500 in 1992 (in today’s dollars: $175,500) right up to $550,000 at the end of 2017. That represents a 421% increase over the period, allowing for inflation that is a 213% increase – a more than trebling in median sales prices in 25 years.

Examining this chart can leave one with the misleading impression that that prices over recent years have experienced exponential growth. The reason being that a $50,000 rise in 2017 represents a 10% increase – highly visible on the chart, the same 10% rise in 1992 would amount to just $10,000 barely imperceptible on this axis, creating this impression that recent rises are more significant than a decade or two ago.

I've looked for patterns or trends in the path of median price over this protracted period and judge that the 25 years can be split up into 5 distinct periods as I have outlined on the chart, periods ranging from just over 4 years to 6 years.

I have then separately charted each of these periods. For each distinct period I have deliberately created a Y axis that ranges from a minimum of 20% below the median price at the first month of the period; to a maximum range of 110% above the median price at the first month of the period. This has been undertaken so that each chart can be viewed comparatively with each other.

The interpretation I draw from this analysis of the 5 periods of the NZ property market over the past 25 years based on sale price is that we experience cycles, no great surprise! We've had 3 periods of rises ranging in duration from 50 months to 70 months. Each rise has been followed by a plateau period equally lasting from 62 to 70 months. Within the second plateau period from Nov '07 to Jan '13 was the only significant period of falling prices. This decline lasted 23 months and at the lowest point prices fell 8%.

What is equally striking is the comparison of the three periods of property price inflation - the early 90's and the most recent 59 months both attaining a level of just under 50%, compare that with the staggering 102% rise leading up to the GFC over a period of 70 months. Certainly by this analysis the most recent 5 years have seen strong price inflated but nothing of the extreme seen in the early period of the new century.

For me this analysis proved the value in visualising price movements in terms of relative indexing as I have done with paralleled Y axis in each of the 5 periods. This got me thinking as to how to best represent this indexing in a histogram of property price movements. A bit of experimentation and trial and error has produced this new chart below.

It is a binary chart where the criteria is relative 10 months performance against a base month. It seeks to highlight periods that have experience significant increases in property prices or periods where prices have stagnated or declined - picking out individual months.

By way of demonstration to show how the chart is developed, let me explain. So if as an example the median price in January 2002 is less than the average of the median price in the preceding 10 months then January 2002 is judged to be a month of weak sale price and a red bar is displayed. Similarly taking May 2015 if the median price in that month is greater than 5% above the average median price for the preceding 10 months then May 2015 is judged to a month of strong sales price and a blue bar is displayed. The decision surrounding the use of average rather than max or median; as well as the 10 month period as well as the 5% inflation criteria are purely experimental to deliver what I judge to be a valuable visual representation of the property price trends.

I rather like this representation as a visual cue as to the trend in the market highlighting periods of sustained growth, sustained weakness or variability between growth and weakness.

As to interpretation of this chart and the earlier charts as a guide to the future, I will leave that to you the reader as my role here is not to predict the path of property prices, merely to provide a lens through which to view and make your own judgement as you interpret the data.

 

 


Homes – New Zealand’s answer to Zillow

by Alistair Helm in ,


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The NZ real estate industry witnessed a significant milestone just over 2 years ago when Homes.co.nz hit the market. At that time the launch was significant. Today, two years later the service remains significant, and it is my belief that it will become ever more significant in the years to come.

Here is why.

Homes did just one thing when it launched, and it did it well. That is the mark of a business with big ambitions. It, for the first time allowed anyone, anywhere to see historical property sales records and estimated valuations for any property in NZ …. for free!

Sure, it was initially only for the main cities and it was not a great website and there was no mobile app. But for those who crave this type of information, all of those things were of little consideration. They wanted facts. Facts that had for decades been hidden behind expensive price tags. Remember for a minute, that back then in 2015 if you wanted to get the last sale price for a single property you have to dole out $10 on the website / $2.95 on the app of QV. To get a collection of comparable local sales, twice that amount; and for an estimated valuation $50.

Homes very quickly built a sizeable audience and become the chatter of meetings between friends, colleagues and neighbours. Marketing dollars were not needed when you have a source of information that is like cat nip to anyone who owns a property or wants to own a property or is simply curious about what your landlord’s place is worth!

Homes leveraged this consumer appetite with smart PR stories about every imaginable property fact and took on a smart and approachable marketing head in Jeremy O’Hanlon who was savvy and accessible. The word of mouth grew as did the traffic.

 A bit of diversity wouldn't do them any harm!

A bit of diversity wouldn't do them any harm!

Homes is, and continues to be a privately funded start-up and at launch recognised the need to have a seasoned entrepreneur to seek out the initial funding and lead the company, this was when John Holt came on board to support the original founders being Jamie Kruger and Michael Gibbs.

Fast forward two years and whilst I don’t know the ins and outs of the company, I do know from extensive conversations with customers of Homes (agents and users) they are doing well and are on a fast track for the coming years to become a significant force in the NZ real estate marketing arena.

So why do I hold this confident position?

Simply put. What I see in Homes is what I witnessed with Zillow in the US from their launch in 2006 right through to their position today – a 3,000+ employee company with a turnover north of NZ$1 billion and market cap of NZ$7.5 billion. Allowing for the relative population comparison that would provide a potential comparable valuation for Homes in excess of NZ100 million.

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Zillow launched with a simple website (back in 2006 don’t forget there was no apps store, so the web had to do). It provided a simple offering – historical sales data and valuation (Zestimate) for almost every property in the US for free – the first such offering.

The site instantly became sticky (first day topped 1 million page views) as people had an insatiable appetite to see what their house was worth. That audience quickly generated a significant advertising revenue. As so with Homes who smartly set up sponsorship arrangements with key advertisers prior to launch as well as regular ads.

For Zillow the relationship with agents was at first testy – loved by few and hated by many; but it was not long before the smarter agents started recognising that the ad units Zillow could sell next to properties records and Zestimates was a perfect place to pitch to prospective clients. For Homes they established the same service with free agent profiles and premium profile so agents could ‘brag’ of their sales success on individual property records.

With agents recognising the power of the Zillow audience it was not long before these agents started uploading active listings which instantly bore fruit with strong viewing figures as Zillow users started using the portal for property search. At the time, the market back in 2008 was not as well developed with pure property portals in the US. There was an industry site (ala Realestate.co.nz in the guise of Realtor.com which was not owned by the industry but a kind of de-facto industry site) so Zillow had competition, but sadly for the owners of Realtor.com traffic soon switched leading to Zillow fast becoming the most visited website for property even if it did not have a comprehensive source of listings.

However whilst agents wanted to upload listings, the issue for Zillow was the complexity of the listing process in the US – much like so much of things in the US it is simply best to say getting a source of listings is a nightmare with 900+ Multiple Listings Services each of which is unique and holds geographical monopolies that are political fiefdoms. Bottom line was that whilst agents started to love Zillow their broker business owners and these industry listing services were not supportive.

For Homes the issue was similar but different. Accessing listings in NZ is easy (in theory). There are 6 major franchise groups accounting for well over two thirds of all listings, who can in theory provide a data feed of all active listings at the click of a key so long as you have their support. These 6 major groups though are the shareholder owners of half of Realestate.co.nz and to date the support for listings uploaded to Homes is limited to Ray White together with some independent operators outside the major 6.

 Demonstration of Homes listing in Auckland - almost all Ray White

Demonstration of Homes listing in Auckland - almost all Ray White

As far as Homes playing to the Zillow playbook, I would judge that they are, where Zillow was back in 2009. Which says they have a lot to do, but I would judge that they will probably start to accelerate to catch up pretty fast. Within two years I would see them being a credible and viable competitor to the key players of Realestate.co.nz and Trade Me and potentially the new entrant of OneRoof.

So, what can the Zillow playbook hold in store for Homes. In terms of property marketing there will come a whole suit of premium advertising products which agents will pitch to sellers as digital continues to grow in relevance in property marketing. In addition as a function of the owners flagging their own home on the site they will be able to actionsmart direct marketing to property owners and prospective vendors. In terms of agent advertising I think they are better developed than any other digital player in NZ today which includes Trade Me and Realestate.co.nz. On top of this then comes the ancillary business opportunities. Zillow created a mortgage origination marketplace, not something that really exists in NZ but certainly a deeper and richer relationship with key NZ banks and financial institutions could be mutually rewarding for Homes.

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A bit more lateral is the pivot from Homes adopting the Zillow playbook to adopting the Zoopla playbook. Zoopla in some ways the UK version of Zillow, has very successfully broadened its business from property marketing to price comparison services, originally around utility and finance services through the acquisition of uSwitch to recently pitching the acquisition of Go Compare a far broader and significantly larger player in the UK market for comparison services. The logic being that once you become a trusted source of information and services of the house as an asset, then you can leverage that to any financial transaction from or to-do-with the house, especially as the house is always the biggest financial asset anyone generally has.

So what if any are the roadblock which sit in Homes way?

Listings. If the real estate industry decided it was not going to support Homes and not syndicate their listings to them as a property portal then Homes will struggle. However I don't think it would be killer blow to Homes, if they can demonstrate to agents that their appeal to clients and customers is as good or better than the current portal players then the power of the agent against the force of the key real estate companies will be the real test.

I’m excited to see what happens over the next 2 years in the real estate marketing arena, there is a lot at stake and some well-established players with a lot to gain and a lot to lose.


So what's been happening over the past 3 years?

by Alistair Helm in ,


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I have been meaning to sit down and reflect what has happened in the NZ real estate market over the past years since I parked up Properazzi back at the end of 2013, and took on the role of Head of Product with Trade Me Property.

As would be expected, some significant changes, and some small changes. So here’s my thoughts.

 

Data

Back in 2013 the best property insights you could research as to historical sales prices and values without reaching for your credit card was at best the monthly aggregated median price by suburb or by region. At the end of 2014 a radical transformation occurred which must have sent shivers down the spines of QV and Core Logic, as first Homes.co.nz, and then shortly afterwards Trade Me Property liberated property sales records giving us for the first time the ability to search for sold prices on any property in the country.

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Homes got the early lead as Trade Me offered the data only on the mobile app, but the gap was quickly filled as Homes launched their app and Trade Me brought data to the website. Homes stepped ahead with an automated valuation model (AVM) for a majority of properties from launch with Trade Me matching with the launch of Property Insights in late 2016.

This is without doubt the game changing event of the past 3 years. Nothing comes close; and nothing has done more to assist buyers and sellers gaining a perspective as to an estimated valuation and historical sales records for all properties. It is appropriate to note that both Homes and Trade Me offer AVM’s only when there is sufficient comparable data. They have both employed sophisticated computer algorithms that churn through property data to create estimated values coupled with confidence factors which means that they are delivering around 60% of all AVM's within 10%. That is to say they can predict the likely sale price to within 10% in 6 out of 10 cases, which is pretty good as a global benchmark.

This democratisation of data has, as would have been expected, been a challenge for the real estate industry. However 2 years on, the majority of agents and agencies have recognised that a better-informed customer is an engaged customer; one they are happy to advise as to the local nuances of the market with the local up-to-date knowledge that can help steer them towards a much closer market appraisal than a faceless computer based AVM.

New Zealand has at last caught up with so many other countries that make available property sales information; thereby saving consumers money and alleviating uncertainty.

 

Digital marketing

This area has been on reflection slow to change (or stubborn to change?). The same two adversarial players of Realestate.co.nz and Trade Me Property are still the main players in town, but not for long I suspect. NZME are lining up their new portal OneRoof (more of this to come) and at the same time Homes, in mirroring the “Zillow playbook” has pivoted from property sales data and estimated valuation to now provide on-the-market listings of property for sale and rent from a growing number of agencies as they head to becoming a fully fledged property portal.

Whilst the Chinese language market is not large, it is relevant and in Auckland significant. Hougarden launched in 2011 has grown and grown to deliver a great digital service, especially as they severed their listings data-feed relationship with Realestate.co.nz back in 2015 and have now become a standalone portal.

In terms of user experience, I have to say that the key players have been slow to evolve, Realestate.co.nz has a new site which they seem nervous to commit to (more to follow on this matter) and I wouldn’t blame them. Trade Me Property has tweaked their website but their main focus has been on their mobile apps which continue to evolve streaking ahead of Realestate.co.nz which has hardly touched their apps in the past 5 years. I am clearly a party to this performance having had responsibility for all digital products at Trade Me over these year, whilst not a defense I would say it has been a learning experience as to the pace of product development at such a leading digital company (more to follow).

In the broader context of digital marketing, Facebook has made huge inroads, attracting the digitally savvy agents who seek to use the platform for marketing properties and more especially themselves as brands – many specialist marketing agencies have sprung up to assist such agents and clearly significant sums of money are now flowing into this area and likely to accelerate in the coming years.

Bottom line is that the past 3 years has not amounted to a radical step forward in digital marketing, more of small tweaks.

 

Industry structure

Little has changed in terms of industry structure. There are more licensed salespeople in the market today than there were 3 years ago. The latest data from REAA shows 12,714 salespeople in November, up from around 11,000 3 years ago. For these salespeople the market is a lot tougher, as back in 2013 annual sales totalled 80,000 and was on an upward path to peak at 95,000 property sales, today it is back down to 74,000 sales per year and heading down.

New players have entered the market mainly focused on trying to challenge with a fixed price model vs commission fees but the reality is that the top 5 real estate companies still represent close on two thirds of the market, a position little changed from 3 years ago.

One aspect of the industry of positive note is the stricter adherence to governance through the REAA and the complaint procedure process. The chart below tracks the annual total of complaints brought to the disciplinary tribunal (being the highest level of discipline within the structure of the REAA) – misconduct being the most serious finding, which for 2017 shows the lowest level since the organisation began. (The 2013 peak was probably more a function of the backlog workload throughput that the REAA took on in the early years and not so much a reflection of a single year).

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I guess the other elephant in the room that has focused the minds of the real estate industry over the past 3 years has been the investigation by the Commerce Commission into allegations of price fixing. This investigation was triggered back in 2013 by the actions and comments made by some companies in the industry in reaction to the decision by Trade Me Property to amend the pricing of listings. The outcome has been costly for the industry with close to $15m in fines levied against 13 regional and national real estate companies.


New Zealand slipping down the rankings of global property price inflation

by Alistair Helm in ,


This may well be the kind of news that we will all may be a little bit pleased to see. For once NZ and especially Auckland are not at the top of the global leaderboard by property price inflation. The Reserve Bank and government officials, I am sure will be somewhat heartened.

This ranking is provided by Knight Frank, one of the global leaders in real estate and their international research department are providers of valuable comparisons of residential and commercial property data around the world.


NZ ranked 27th out of 56 countries in 3rd quarter 2017 Global House price index

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Full report can be downloaded here

At a 5.2% year-on-year house price index inflation the Knight Frank team now assess NZ as heading downwards and place it at 27th place of the 56 countries ranked in the survey. Our neighbour Australia is considerably higher placed at 7th with an annual rate of house inflation of 10.2%.

Tracking the past 5 years in the chart below comparing NZ median price by quarter against Global House Index shows the extent to which the NZ market ran ahead of global index through the past 2 years. It also shows to what extent that the market has come off the boil in the past 9 months, although the final quarter of 2017 is showing a rise. Note: The NZ data in this chart represent the REINZ median price data showing a 4% year-on-year inflation in Q3 2017 vs Knight Frank's at 5.2%.


Auckland ranked 98th out of 150 global cities in 3rd quarter 2017 Knight Frank Global Residential Cities Index

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Full report can be downloaded here

At a 2.7% year-on-year house price index inflation the Knight Frank team now assess Auckland in the bottom third of global cities. Interestingly in the top 20 appears Wellington with a 10.7% annual inflation in 19th place. Our neighbouring cities in Australia see Melbourne at 10th place with a rate of 13.2% and Sydney in 26th place with 9.4%.

Tracking the past 5 years in the chart below comparing Auckland median quarterly price vs Global Index shows the significant inflation ahead of the global index of all 150 cities right up until Q1 2017, the significant decline in property price inflation since then demonstrates how much the Auckland property market has come off the boil in the past 9 months. The comparison of median price as reported by REINZ for the 3rd & 4th quarter year-on-year shows declines. Note: The NZ data in this chart represent the REINZ median price data showing a -0.3% year-on-year inflation in Q3 2017 vs Knight Frank's at 2.7%.


In addition to these two rankings tables Knight Frank has also released a comprehensive report on Global Cities. Auckland is featured as a case study in the report with the following excerpt from Rachel McElwee, Head of Research, Knight Frank New Zealand detailing the developments on the Wynard Quarter and the impact this has on the city.

Auckland: Blurring the lines

"Mixed-use development is reshaping Auckland’s central city, blurring the lines between work and living environments. The largest urban regeneration project currently underway in New Zealand, Wynyard Quarter, is transforming the former industrial port into a mix of residential, retail, leisure, hotel and office space. New types of purpose built spaces will be created such as the innovation hub, housing a campus-style precinct fostering creativity, technology and originality for start-up companies. A diverse range of tenants include the Auckland Theatre Company, financial firm ASB, architects Warren and Mahoney, the Hyatt Hotel Group, and multinational dairy co-operative Fonterra. When completed in 2030, Wynyard Quarter will house approximately 3,000 residents and 25,000 workers. The redevelopment covers 37 hectares of land and stretches three kilometres along the coast. Investment backing for the project came from off-shore, private investment, third sector and government sources. The waterfront could be further transformed if Auckland stages the next America’s Cup in four years’ time".

 


Clearance rate tracks property market trends

by Alistair Helm in


The latest NZ Property Report from Realestate.co.nz was published at the end of last week. Its value lies in the key market indicators of inventory and listing numbers, providing a guide to the state of the property market and the trends we are likely to see in the coming months. It can be judged to be a forward-looking report as compared to historical sales data from REINZ. As an industry-owned site, Realestate.co.nz is without doubt the most comprehensive window onto the market with pretty much universal support from all agencies.

The January report covering the last month of 2017 was clear in its headline:

All-time low for new house listings across New Zealand while asking prices continue to climb despite increasing total stock numbers

I might argue, that far from being a surprising headline, the notion of new listings being at “all-time low” is something that has perplexed the market for the greater part of the past 9 years since the GFC.

The chart below shows the annual total of new listings for the past 11 years.

The most recent 12 months has seen a total of 118,647 new listings hit the market. The lowest annual total since data was first collected in 2007. Compared to a year ago, new listings are down 4.5%, with 5,500 less properties for buyers to choose from.

For Auckland though, the most recent 12 months has been a slightly bit brighter. A total of 40,870 new property listings have hit the market, up 8% as compared to last year, however nothing like the c. 60,000 new listings per year seen a decade ago. Auckland may well be finding a new balance between a buyers’ market and a sellers’ market as the NZ Property Report stated and the media promoted, but the City of Sails is far from awash with an abundance of listings.   There are currently at this time just under 9,000 residential properties of all types for sale across Auckland – this for a city of 1.377 million people. Pre-2008 GFC there were around 11,000 properties for sale, at the time, judged a fairly balanced market.

Whilst defining the state of the property market by the measures of inventory and new listings and comparing them to long term averages as Realestate.co.nz does is a fair method. I have though long been pondered how best to measure the state of the property market as a valuable guide to future trends. There is certainly no shortage of stats on the market – sales volumes, new listings, days on the market and inventory. Looking afresh over the past few weeks I have been pondering the notion of clearance rate as an indicator. The idea being that the state of the market can be reflected in the proportion of new listings that actually sell. Simply put, what percentage of properties that are listed are sold in a given time period? This is difficult to do in respect of specific properties, but in aggregate, for a specific time period we can look at the number of sales as a percentage of the number of listings; mashing together the REINZ sales data with the Realestate.co.nz listings data. These two data sets pretty much match apples-with-apples as they represent 100% of all licensed agent listings.

The chart below shows the clearance rate for total NZ residential listings from 2008 to date using a 12 month moving total comparison. To my way of looking at it, a fair representation of the activity in the property market over that period.

Peaking at 74% in the middle of 2016 before slipping back to 62% currently. At its worst, at the start of 2009 in the depth of the GFC just 34% of listings were selling.

For Auckland the picture is somewhat similar, although the most recent 2 years has seen a more significant decline; peaking at 76% at the end of 2015 and slumping to below 50% today – so effectively in Auckland today only half of all new listings are selling, a situation not seen since 2011. The market in Auckland has stalled.

However I feel this analysis of clearance rate is only half the story as everyone always rightly wants to know “how will this effect property prices” – far closer to most people’s real concern in many cases than the clearance rate.

So I decided to overlay property price movements on to this clearance rate data using REINZ median prices and their annual percentage change each month.

The result is the chart below for all NZ property spanning the past 11 years.

The split axis allows for the ability to align the data to better see the correlation – looks like a strong correlation. However would I be going too far to say there is a causation?

The logic is not new or rocket science. As the property market becomes more active with growing confidence of buyers and sellers enabled by encouraging support of banks, so the clearance rate rises, and prices start to rise reflective of demand pressure. The opposite being an easing in sales as finance dries up and confidence falls leading to falling clearance rates, flowing through into easing price pressure.

Undertaking the same analysis for Auckland not surprisingly mirrors this close correlation.

However what I found even more interesting is that if I adjusted the clearance rate and instead of using a 12 month moving total (which provides for the smooth even curves), I used a 3 month moving total.

This representation of the Auckland market certainly supports the hypothesis of the NZ Property Report that Auckland is now a buyers market. But this is not a sudden change which just happened at the end of the year. No; Auckland has been in a buyers market for most of the past 6 months and by December it has plummeted with close to just a third of all listings selling. The key question now is what is the new year likely to bring and how will this chart of clearance rate look after the summer?

 

 

 


Property Market Summary - Year end 2017

by Alistair Helm in


It is time for me to get back into the swing of writing articles on the status of the property market in NZ. I thought that since it’s over 3 years since the last such analysis I would start with a bit of an overview and what better time than the close of the calendar year.

 

2017 could best be described in my view as a bit of a ‘steady’ year – certainly not the most dynamic, but then again not a particularly ‘frothy nor exuberant’ year. In this regard the pressure of an overheated market witnessed in 2015 and 2016 seems to have somewhat abated – not I should stress that heat gone away, simply that the pressure valve has been reduced somewhat.

 

I like to starting any analysis with sales volumes, which in my view is the most important indicator. The volume of sales and to a lesser extent the pace of sales, reflect the confidence of property buyers and sellers to engage in the market. In the past year total residential sales look to be at the level of 74,500. A level almost identical to the recent years of 2012 and 2014, and fully 19% down on the recent heights of 2015 and 2016 which topped 90,400.

 

Residential property sales have been falling (month vs month prior year) since June of last year, a consecutive run of 18 months. At that time the 12-month total of sales amounted to 94,631, this has fallen to a level in November of 74,187. That is a fall of 22%. However by analysing the variance trend, it can be seen that rate of decline is slowing and by early next year the trend is likely to be reversed and sales will show year-on-year rises.

 

By then this decline will have represented the second longest consecutive run of falling sales since the turn of the century (the GFC period of May 2007 to Feb 2009 was 22 months of consecutive declines). That GFC period saw a significantly drop in property sales. Total annual sales dropped by close on 50% from 106,000 in the 12 months to May of 2007 to just 53,000 in the year to Feb 2009.

 

Whilst sales volumes are the best indicator of the state of the property market, there is an important denominator that needs to be considered when looking at time-series data, that is the number of actual residential dwellings in NZ over time.

When the Real Estate Institute started collecting monthly sales data from agents back in 1992 there were around 1.2 million dwellings, speed forward to today that number is now over 1.6 million, an additional 400,000 new dwellings. This denominator therefore needs to be laid as a measuring rod against any comparative sales figures. The chart below tracks the residential sales figures over that period as a % of the dwellings in the country at the time to show what proportion sold each month as moving annual total.

Over the past 24 years, the long term average rate is 5.8% of all residential dwellings are sold each year. At the very peak of the market back in the early years of this new century that rose to a peak of 8.5% in 2004, post GFC that figure slumped to just 3.5%, currently at this time we are sitting at around 4.5%.

I have in this analysis kept to the volume of sales as the single data point, this I believe is key in analysing the market as price does tend to follow transaction levels, something I will explore in a future article.

As to the ever present question "so what is the property market likely to do in 2018? - well the fact is forecasting the property market is not an exact science, to back me up in this assertion, I was heartened to hear the Managing Director of the IMF Christine Lagarde make just such a statement in regard to forecasting on a recent podcast from Freakonomics

forecasting is not a mathematics science and is more an art than (then) something else, although there is a huge effort on the part of our teams here to improve and refine. But there are totally unpredictable events and there are things that we simply do not understand, which are related to human nature, with behavior, as the Nobel jury has recently acknowledged by celebrating and acknowledging the contribution of behavioral economists
— Christine Lagarde : Managing Director, International Monetary Fund

If one of the leading bankers of the world recognises the uncertainty inherent in forecasting, who am I to try to second guess as to the future of the NZ property market!