Does REINZ recognise the issues facing Realestate.co.nz?

by Alistair Helm in


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This post is specifically written for real estate professionals in NZ, I am not saying that the content will not be of interest to other people, but I sincerely hope that this post more than many I write, is read and shared by real estate people who recognise the role and value of the Real Estate Institute of NZ (REINZ) and who share a belief in the value of Realestate.co.nz.

If you have been a regular reader, especially over the past 12 months since re-establishing Properazzi you will know that I have written regularly on the issues I see with Realestate.co.nz as the industry owned property portal, as well as other articles on the growing competitive threat it faces.

I have made these assertions based on what I judge is the unique experience and insight I have of property portal operation here in NZ and globally.

I’ve reached out in the past 6 months to some of the leaders of real estate companies who are shareholders in Realestate.co.nz, to share these concerned in a very detailed manner with extensive facts and market research. I don’t propose to share this insight here, as it’s based on my own IP and if anyone wants to pay me for this knowledge and insight, I am happy to discuss. To be clear I made it available to the industry simply because I am passionate not to see the industry squander the opportunity that Realestate.co.nz provides to all in this industry, both as a digital marketing platform but also a significant financial asset.

Sadly, my philanthropic gesture appears to have fallen on deaf ears. Not a single invitation was offered for me to meet with the board of Realestate.co.nz, the executive of Realestate.co.nz or any representative of its shareholders. Clearly from this I judge they do not think I have anything to offer. (Just for clarification and background for those who are unfamiliar, Realestate.co.nz Ltd is a privately held company as a joint venture between REINZ and Property Page NZ Ltd a private company itself owned by 5 of the large real estate companies).

With this lack of engagement, I chose this week try another angle and attend the AGM of the Real Estate Institute. I am a member of REINZ as a licensed sales person and therefore like 15,000 or so of my fellow real estate professionals able to attend this annual meeting. I requested in advance to table my address the Board of REINZ and the members present at the AGM under the General Business item of the agenda.

The AGM was a well-attended event and I would be the first to congratulate the board of REINZ and the outgoing chair Dame Rosanne Meo for the transformation that has been achieved in the organisation over the past 8 years. The industry has a professional and competent organisation that has a clear strategy to add value to its members across data, advocacy and education. However, my message to the REINZ board was sure to rain on their parade for which I make no apology. Bad news is never palatable but what I chose to speak about is I judge of significant importance.

I did not speak off-the-cuff but chose to deliver a pre-written address, so I could be succinct as possible and also I could share the address with others. Here is what I prepared and presented at the AGM.


Thankyou Madam chair, I appreciate this opportunity to address the board of REINZ and in addition the members of REINZ both here in person and through this meeting platform to the wider membership.

I have chosen to read from a prepared letter rather than express my opinion spontaneously for the benefit of brevity. Such is my deep concern for the governance of Realestate.co.nz that I might exceed my self-allotted time limit of 5 minutes.

I come here today to address this board and this organisation on a matter that I feels needs the urgent and critical attention of the board. As I will outline, I charge that the board of Realestate.co.nz have over the years mismanaged and squandered the opportunity to not only make Realestate.co.nz a credible and trusted digital platform for buyers and seller but also to create an asset of immeasurable value for the long-term benefit of all members.

Let me begin by introducing myself for those who may not know me. I have had the pleasure over 12 years in this industry to meet and get to know many of you here today. As some of you may know, I began my association with the industry back in 2006 when I became the CEO of Realestate.co.nz, a role I undertook for 6 years. Over the past 6 years I have continued my involvement with this industry working with direct competitors of Realestate.co.nz. Today I attend this meeting for the first time as a member of REINZ – a licensed salesperson with Bayleys. The comments I make here today are made as a customer of Realestate.co.nz and member of REINZ and I judge are professionally objective.

Let me be absolutely clear. I am deeply concerned as to the viability of Realestate.co.nz, not the long-term viability but literally the short-term existence; for I fear that the business has but a short timeline of relevance. I have over this past 6 months shared my thoughts and opinions with leaders in this industry in one-on-one meetings. I took the opportunity to address the board and assembled members here today as a vital opportunity to share this opinion within the wider real estate industry through the shareholding membership of REINZ.

At the outset Realestate.co.nz was established to support and protect the industry from the rapacious ambitions of the competitive media players. Sadly, that mission seems to have been ignored or at least less zealously aspired to over recent years. The company has in my opinion been poorly managed with lacklustre performance and at its core a woefully inadequate technology platform.

Over the 12 years of its operation, Realestate.co.nz has at times taken significant strides forward, whist at the same time has been offered significant competitive opportunities to attain leadership in the digital marketing space. Sadly, over recent years these opportunities have been squandered as a consequence of poor investment decisions made by the executive and board of the company. It is simply not true that the business is the leading property website and for the board of REINZ to be told that is at best misleading.

I hold the board of Realestate.co.nz responsible for what I think has been poor governance and worse still incompetent operational management of the company. This past year’s performance is appalling but is not an isolated year, prior years demonstrate that the opportunity has been missed to leverage this critical digital asset for the benefits of all members of REINZ.

Realestate.co.nz is a technology platform operating a digital marketplace, however over the past 5 years there has been not a single piece of innovation that can be demonstrated to in anyway challenge or in any way concern the competition. The current website environment is an embarrassment, comprises a capable but ageing 2010 ‘Classic’ site matched to a poorly executed ‘New’ site that after 18 months in the market is clearly recognised for the failure it is. Worst though are the mobile apps which nowadays as the platform of choice for more than half the audience of buyers and sellers; have been seriously neglected for years, having been at their launch the most innovative challenge to the competition.

In my opinion the management of the company has not demonstrated the competence required to run a digital business. I believe at the heart of the issue is the lack of technology and digital business experience within the board. Over the span of 12 years and 19 directors only 2 came to the role with the slightest relevant experience, over the past 8 years just 12% of the board representation has provided any relevant experience.

Realestate.co.nz was created as a ‘not for loss’ operation, as an asset for the industry – however to remain relevant and competitive requires reinvestment to grow, simply because in the digital classified arena if you are not growing you are declining and let’s be clear growth is not just providing annual results of revenue growth. Growth is asset value and consumer advocacy and I see no growth in either. The Chairman’s report this year reads like a facsimile of past years. Thanking the industry for support and speaking of challenges and improvements made but sadly these improvements must be in the minds of the board. For the industry, your customers are losing confidence, faith and trust in Realestate.co.nz – I know, I personally as one of your passionate and technically competent re-sellers is finding it increasingly hard to advocate the site to my clients, when it offers so little real value against its competitors, and as a technology platform it is rapidly becoming out of touch and I fear irrelevant.

I did not get the chance to finish this address, I was just over half way through when Dame Rosanne Meo stepped in and requested I wrap up. She stated that whilst she recognised my passion for the business of Realestate.co.nz, she judged that my opinions expressed were not the view held by the board of Realestate.co.nz. She said the board of REINZ were supportive of the Chair and board of Realestate.co.nz and as Realestate.co.nz is a separate company in which REINZ is a 50% shareholder this forum of the REINZ AGM was not the platform for discussing a separate company in which REINZ was just a shareholder.

I did not object to her interruption of my address, I respect her opinion and I politely and graciously returned to my seat. I was though naturally disappointed as I strongly believe that the performance and governance of Realestate.co.nz is a critical matter to REINZ, something that should be addressed.

I contend that the industry, that being the members of REINZ should have confidence that the operation and governance of Realestate.co.nz is being undertaken to optimise the consumer experience as a critical search portal, the customer value as an effective marketing platform for clients’’ listings and the asset value of the investment that REINZ holds in Realestate.co.nz for the benefit of the organisation and the industry. This latter criteria is the one that most concerns me as I fear the board of Realestate.co.nz have little appreciation of the true asset value – not a difficult assessment to make given the transparency of publicly listed property portals around the world.


SQUANDERED OPPORTUNITY

Let’s cut to the chase a bit here. The cold hard fact is that in my opinion the board of Realestate.co.nz have squandered a golden opportunity.

At the inception back in 2006 the focus was very clear – why let the traditional print media companies or their arrogant ‘start-up’ siblings dictate the future media platform of digital which was so clearly going to be the platform of the future, when we the industry, can compete and operate such a platform. This was the smart strategic insight. It proved so smart and by 2010 it was a successful strategy as it defeated the REA aspirant AllRealestate and thwarted the progress on Trade Me Property. This was the time when the board did assess the future equity value of the asset they were creating at the time when global property portals’ market cap’s shot skyward. The directors did star gaze and wonder if this asset might best be sold off for tens if not hundreds of millions of dollars, with that windfall gain being funnelled back into the industry for the benefit of the industry and its members.

Sadly, that mindset diminished, and the focus became beating Trade Me and attaining a goal that was illusive at best, and more than likely impossible – that of surpassing Trade Me’s audience and that is why the single-minded focus from 2013 became consumer advertising on TV and all other media with no thought to the investment in the technology.

As that strategy was followed, so the competition arose and that 100% audience gap stubbornly remained, years past and the notional asset value of Realestate.co.nz began to erode and that is where we find ourselves today. A still massive audience gap to the market leader in Trade Me, new competitors nipping at their heels and a technology platform creaking and crumbling from a lack of investment. At best the value of the asset now can be measured in single digit millions of dollars if it was even of value to anyone. This is the reality of a missed opportunity that I think the whole industry needs to know.


Addendum

This article was drafted between Monday 25th and Thursday 29th November, the Monday being the date of the REINZ AGM.

I was very tempted to post immediately after the AGM, but thought I would wait. Just to see if I had sparked any reaction, feedback or question, 4 days later nothing. Nobody in attendance at the AGM has made contact.

At the AGM, as soon as it had concluded I waited around. I was approached by the Chairman of Realestate.co.nz Fairfax Moresby. He asked me in a friendly manner ‘why I had not picked up the phone and chatted with him to share these concerns’ - I told him that I had chosen to reach out to the shareholders and not the executive or Chairman. That was decision I have taken , I did not feel the approach by me to either of these parties to tell them what they were doing wrong (in my opinion) was either appropriate or would be taken in the right manner.


The unchanging face of NZ real estate

by Alistair Helm in


Photo by  Sharon McCutcheon  from Pexels

Photo by Sharon McCutcheon from Pexels

I had the pleasure the other week of lecturing to second year Property students at the University of Auckland Business School. The subject of the lecture was the structure, processes and practices of residential real estate. In putting together the slides for the lecture, I was wanted to provide some facts around the 'typical' real estate agent and therefore went over to the Real Estate Authority website to check out the latest stats on licenses held by those in this industry.

This single slide provided the students with a visual insight into the industry some might be interested in joining, or so I thought. I took the opportunity to ask the assembled c.100 students how many were considering a future career in residential real estate?

Not a single hand rose.

The fact is most of these students see their future career in commercial real estate or property management or valuations, so I took the opportunity to open up a discussion as to the students' views of residential real estate.

However before sharing the thoughts and feedback let's dwell a moment on the facts as presented in this chart.

The demographics profile of NZ real estate agents

The age demographic of the NZ residential real estate industry has hardly changed over the past couple of decades. It is regarded by many as a 'second career' with that median age hovering in the late 50's. (No surprise here that my recent entry into this industry as a practicing agent puts me squarely in that age bracket!)

Across the more than 15,000 individual licensees the gender balance is slightly more skewed to men, having said that within the age bracket with the most agents, being 40 years to 60 years; women are in the majority, representing 52% of all agents. However in my opinion, the most glaring statistic relates to the two age extremes. The fact is that less than 1 in 10 of all licenses held by agents (both men and women) are under the age of 30. Whilst the proportion of men over 65 years in the industry is 1 in 6. These are the facts, and whilst I have no historical data to hand, I recall from earlier readings that even 10 years ago these demographics were pretty similar. 

It is interesting to compare these numbers with the latest data from the US and their National Association of Realtors whose 2018 Member Profile Report shows that 63% of agents in the US are women, the median age is a similar 54 years but over there, the age bracket of under 30 years represent just 5%, whilst over 65 years represent 20%!

Across the ditch whilst I could not find any published statistics, I know from first hand experience that it is a far younger industry, with I would imagine probably around a quarter of all agents under 30. The industry in Australia certainly has a more youthful feel.

Now back to the question and the subsequent discussion - why is it that young people are so under represented in the make up of the real estate industry in NZ? Here are 4 possible explanations as voiced and discussed by the students.

Income

The first explanation voiced by the students was money. As I had outlined the NZ real estate industry is a commission-only industry and it is hard reality that a new agent entering this industry will need to support themselves for up to 6 months with no income and in addition would likely require to fund total costs of many thousands of dollars to get established. Students already saddled with debt are highly unlikely to be able to survive such a start to a career.

Trust

Secondly, trust came up as a point of relevance. How could a twenty-something be able to build trust when perception is that wise older individuals with the relevant life skills engender greater trust around a process that is fraught with emotion and risk? It is a fair comment, especially when you also consider that twenty-somethings have not bought and sold a property. However I could well counter that with the fact that in any line of business such new entrants to the workforce are often handling contracts and responsibility for multi-million dollar value goods and services, the difference being that they are operating within a structure that supports them and backs them within the 'organisation'. In real estate the fact is that you are the organisation.

Perception

The industry is a reflection of the current incumbents and this is self perpetuating and a hard cycle to break, there is no denying that. However there are well over a thousand agents under 30 years who are making a success in this industry. They are overcoming these hurdles and breaking the perception.

Industry Structure

The NZ industry as I have outlined in the past articles is very concentrated with 6 leading companies holding more than half the share of offices around the country. This strength in the major brands and franchise structure that the majority operate, could be seen to perpetuate the same business model that attracts the same demographic profile of agents and does not foster innovation.


So that's 4 perspectives as to why the industry demographic is the way it is and the way it has in someways always been. So what could change, what could be the seeds of change that could be sown to foster a greater diversity amongst the league of agents in the next 10 years? 

Here then are a few of my own ideas to stimulate some debate as to solutions.

Income

Tackling the issue of income has been broached by some companies in the industry through cadetship - offering a base level of salary for an initial contract period rather than commission-only earnings. This base income sustains the cadet and still offers an adjusted commission which would give the young and aspiring agent a vital leg up. I know of some of these schemes from Harcourts, Barfoot & Thompson and I know first hand of such a series of schemes at Bayleys.

I recall very well the discussions back in 2007 when the revision to the Real Estate Agents Act was being debated and the issue came up as to the status of 'independent contractor' which was challenged, but finally upheld for this industry. As I recall at the time it was limited to real estate agents, share milkers and courier drivers. Maybe in time, just as in Australia a minimum salary becomes mandatory and provided to all agents in real estate.

Would a change to employed agents change things? 

In someways it would, as it would seriously challenge the business owners in their recruitment and performance management of all agents as to costs of supporting a non-performer would be very real. It would though at the same time not fundamentally change the open commission opportunity and with it the core appeal of the industry to the majority of top performing agents.

Trust

I am not actually sure this is an issue that needs addressing. It is a perception that is so easily overcome when dealing face to face with a smart professional who can deliver a great service and age is no barrier to that.

Perception

I think there are a number of things that can be done to change the perception of the industry from a career opportunity perspective. There is an organisation that specifically focuses (as the name suggests) on young real estate professionals: Young Professionals in Real Estate (YPIRE) - it's an Australasian organisation but has held a number of events in NZ, however none lately and none planned. It has the backing of the Real Estate Institute of NZ and Realestate.co.nz but judging by its Facebook page and website it has all the signs of a distinct lack of attention.

Engaging young people I think has a lot to do these days with creating an entrepreneurial spirit, young people are inspired by peers who are leveraging technology to transform industries and processes. I have been impressed over the past few years by a US initiative driven by Realogy (the leading US real estate franchise conglomerate) - FWD is an annual innovation summit where budding startups pitch their technology solution within the real estate industry and stand the chance to win the top prize of $25,000 and with it the kudos of being profiled in front of the most influential people in the US real estate industry.

Why not adopt this approach in NZ. There are a number of smart tech innovators looking to offer solutions to the real estate industry here in NZ who have ambition to capture a global market. How hard would it be for one of the leading real estate companies or even REINZ to put such an event together and in so doing reframe the perception of the industry, one that is open to new ideas and willing to support innovation.

What am I doing?

Something I am doing personally is to participate in the Business School 'buddy' system - acting as a mentor and allowing a couple of students to tag along with me as I do my day-to-day work over the next few weeks giving them what I hope is an insight into the industry, and in so doing foster some greater appreciation of the way this industry works and highlight the opportunities open to smart graduates.


The property market cycles of the past 25 years

by Alistair Helm in


When property prices are on the rise, the commonly asked  questions are usually based around how long can this bull run last?; are we in a bubble?; or have prices become disconnected from reality?

All are fair questions. However what is really interesting is the fact that these questions tend to float to the surface of the media precisely at the end of a property cycle. Property cycles are a historic part of the property market, here in NZ and globally. These cycles tend to last around 5 years and represent periods of either stagnant growth, accelerated growth and in some case declines.

In an article I wrote a few months ago I isolated the key periods of the property market identifying 5 periods tracking the median price data provided by The Real Estate Institute for over 25 years. Those 5 periods comprised 3 periods of rising prices and 2 of plateauing prices. The chart below reflects this perspective.

Interestingly I was sharing this insight the other day to a group of real estate colleagues as we reviewed the state of the current market. We are currently in a plateau phase - certainly in Auckland. The question I was asked of this chart, was as to the relative rate of increase during each of these periods as there is a perspective that property prices grew faster in the recent 5 years as compared to the 2002 to 2007 period and certainly as compared to the 1992 to 1997 period. I pointed out that this chart can be deceptive. The representation with a vertical axis of the actual median price can be misleading as a 100% increase from $100,000 to $200,000 as was the case in the 90's represented a dollar rise of $100,000; however a dollar rise of $100,000 in say 2008 from $350,000 to $450,000 only represents a 29% increase.

This got me thinking as to whether there was a better way to represent the trends of these cycles.

A couple of hours work has brought me to this new analysis of the property market cycles of the past 25 years.

Firstly I have chosen to use a different data set from The Real Estate Institute of New Zealand for analysing the market. I have chosen to use the House Price Index (HPI) - this data set is probably the most reliable and accurate data set for property sales prices in NZ. The Index which was developed by REINZ in cooperation with the Reserve Bank of NZ ensures that this price data set is not effected, as it can be by composition changes. That is to say if in a month a higher proportion of sales occur in a relative price band or suburb set this can skew the median price which is the most common and trusted method of sale price calculation.

I also decided that I would analyse two data sets namely Auckland, and NZ excluding Auckland. The fact is a single NZ data set is itself a compositional skewed data set as Auckland being c.40% of the market heavily skews the National picture which then becomes irrelevant for properties outside of Auckland. (More of this is a future article).

The chart below tracks the House Price Index from 1992 to date, for the data set of Auckland and Total NZ excluding Auckland. The Index is centred in 2003 at 1,000 points with dates before that being below 1,000 and dates afterwards being above 1,000. A figure of 1,100 represents a 10% increase over the base month in 2003. A figure of 2,000 being a 100% increase over the base month in 2003 and so on. The latest HPI data from REINZ for May 2018 had an Index of 2,883 for Auckland and 2,554 for all of NZ excluding Auckland.

This chart is very illuminating as it shows very clearly the plateau the Auckland market has been experiencing since reaching 2,800 in August 2016 - nearly two years ago. It also very clearly shows the extent to which the Index for NZ property sales price excluding Auckland shot away in the 2003 to 2007 period. The index to 2003 though in someways confuses the visualisation. I therefore decided to recalibrate the index it back to 1992, as the revised chart shows below.

Now back to that opening question - what are the key cycles of the property market of the past 25 years and how similar or different are they?

Here is a more detailed analysis of the price index data I have concluded upon for which I have identified not 5 but actually 7 phases of the property market over the past 25 years.

Now before you email or call me to ask what on earth I have created, let me explain. I have taken the HPI data and broken it up into these 7 periods or phases of the past 25 years which are tracked along the horizontal axis from 1992 to 2018. For each of the 7 phases I have identified the inflection point and recalibrated the start point to zero. So let me walk you through the 7 periods to help explain.

Period 1 - January 1992 to February 1993

Just a one year period which saw the price index grow by just 7% for Auckland and 7% outside of Auckland. This is subjectively an odd data set as there is no record of what happened pre-1992 and especially from the after affects of the stock market crash of 1987. Best to disregard this phase.

Period 2 - March 1993 to March 1996

Now this was a period of significant price growth. Auckland price index leapt 68% in just 3 years whilst outside of Auckland the price index went up 22%. This 3 year rise of 68% in Auckland is the fastest rise that has ever been seen over the past 25 years.

Period 3 - April 1996 to January 2002

This period of close to 6 years included the Asian Financial crisis and saw property prices stagnate. By the end of the period Auckland price index had risen by just 10% and the rest of NZ excluding Auckland 12%. Twice during that period Auckland prices dipped. By 5% in the first few months after April 1996 and then again late in 1998 dipping by 3%.

Period 4 - February 2002 to November 2007

This would be viewed by many as the most explosive period of property price growth. In the five and a half year period the property price index for NZ excluding Auckland more than doubled, rising 116%, far outpacing the rise in Auckland of 89%. All of this of course foreshadowed the GFC.

Period 5 - December 2007 to December 2009

For a full 2 year period the property market went into a funk. Prices went down. A scenario that many thought would never happen just a few years earlier, however property prices will at some point, just as with all assets; go down in value as much as they may go up. For Auckland the price index slipped 12% in the first 12 months before easing back to be down 3% by the end of the second 12 month period. For outside of Auckland the level of price fall was less severe, down 9% in the first year before clawing back half of that to be 5% down after 2 years.

Period 6 - January 2010 to January 2013

A full 3 years in which property price index rose just 2% outside of Auckland, spending the first 2 years underwater adding to the prior 2 year period making a full 5 years when properties collectively outside of Auckland failed to recover the peak they had attained in late 2007. For Auckland the recovery from the GFC came earlier with this 3 year period seeing a modest sustained growth up 18% over the 3 years.

Period 7 - February 2013 to date (May 2018)

This current 5 year period may in later years be revised to a 4 year period ending in August 2016 when Auckland's property price index peaked up 70% in that period of three and a half years, close on the same rate of growth seen back in the '93 to '96 period. At the same time for properties outside of Auckland the price index keeps rising, up 49% over this 5 year period, the second highest rate of growth of the past 25 years.

So in conclusion, property markets move in cycles and these cycles lead to price movements. It is likely, based on historical evidence of the past 25 years that we are in, or will be shortly be entering a plateau phase, typically these periods can last from 3 to 6 years dependent upon the background economic circumstances. As to when this period started, in the case of Auckland we may already be 2 years into it. In the case of the rest of NZ it maybe that we are about to see this plateauing start very soon. If there is any silver lining it should be seen that a correction that sees property prices fall is less likely and with a strong economy we are likely to see property prices take off again within the next decade. The only certainty is that it is almost always impossible to identify the infection point until after the event !


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.

Screen_Shot_2018-02-13_at_10_47_13_AM.png

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:

comparison_asking_price_to_sales_price_REINZ_Realesatate.png

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.

comparison_asking_price_to_sales_price_REINZ_Realesatate.png

 

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!


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!