THE AUCKLAND QUARTERLY PROPERTY REVIEW - Q4 2018

by Alistair Helm in


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The Auckland market continues to mark time, showing little in the way of a clear direction. It is as if the market were an indecisive person caught at the fork in the road.

“Do I show signs of heightened activity and enjoy sales volume growth and price appreciation, or do I see retrenchment with lacklustre or declining sales and with it a weakening of sales prices?”

Neither future path is yet to be definitively taken. However analysing the core metrics of the market as I love to do, helps to identify the future direction of the market. These metrics are the sales volume trend, the median sales price trend and the clearance rate.


VOLUME SALES

The final quarter of 2018 saw one of the most erratic changes in sales volume for many years. As a total, sales for the months of October, November and December totalled 5,417 properties. This was a 3% rise as compared with the same quarter of last year and totally reflective of the normal market we have seen over the past year as the market has continued somewhat flat. However within that 3 month period the sales as compared to prior year were all over the place.

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October sales were up 19%, November up 12% and the December collapsed with a 21% fall. Yet in total for the quarter - a 3% rise. Why?

I believe what we witnessed was entirely the result of the deadline for the introduction of the changes to the law restricting overseas buyers which came into force on the 22nd October. The fact is any property purchase under contract (be it a conditional or unconditional contract) made legal before this deadline was except from the changes and I firmly believe what we witnessed was a surge in buying activity that brought forward property purchases to meet the deadline. These sales show up in both October and November due to the extent of conditional agreements going unconditional in November and recorded in that month’s stats, as well as unconditional sales in October.

This short term hiccup though does not materially impact the underlying trend in sales volumes as is seen in the moving annual chart below. Sales volumes for property sales across Auckland remain flat. The latest total for the calendar year 2018 was 21,850 down 35% from the most recent peak of the market back in October 2015.

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PRICING

Just as sales volumes have remained flat for close on 15 months, so the median sale price have continued to simply mark time. The median sale price for the final month of the year was $862,000. A year ago it was $860,000. Two years ago it was $855,000. You have to reach back into 2015 and early 2016 to witness the last time median sale prices in Auckland was seen rising significantly. Interestingly way back in August 2016 the median sale price was $854,000, that is 27 months ago, such has been the flattening of Auckland sale prices.

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When seen as year-on-year variance it becomes ever clearer as to the fact that Auckland median sales price has experienced an unprecedented period of stagnation. This though as many people will likely comment is not a bad thing. Stability of house sale prices drives over time greater confidence in the market. Initially from buyers who feel less panicked into the fear of ‘missing the market’ as it rises; and then subsequently from sellers who feel more confident as to what the market value of their property is and therefore more confident to move.

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CLEARANCE RATE

The final of the 3 core metrics which I like to look to to get a rounded and truly objective view of the state of the market is the clearance rate. The measure of the transactional ‘health of the market’. It uses the comparison of sales to new listings ratio as a measure of overall activity in the market.

For the past 3 months, the final quarter of 2018 the clearance rate has bounced back. The last quarterly report for 2018 Q3 highlighted a noticeable and sudden weakening in the market. Halting a trend that looked to be showing all the characteristic signs of recovery. Well, the last 3 months of 2018 seem to have put that weakness out of its mind, and set the trend back on the predictable path which is towards a strengthening in the market.

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The current clearance rate is edging back towards 60% . Still a far cry from the 70+% levels seen back in around 2015 but as ever with property markets there is typically a cyclical movement. The current projection is surely heading towards an upward trend in the clearance rate which then tends to be the lead indicator that (as shown by the historical context in the chart above tracking the past 10 years) may well see a resulting inflationary impact on prices.


QUARTERLY PROPERTY REVIEW FOR NZ OUTSIDE OF AUCKLAND - Q4 2018

by Alistair Helm in


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Whilst the Auckland property market marks time in uncertainty as to next cyclical movement, the market outside of Auckland for the rest of NZ shrugs off this perspective and continues to show healthy development. Sales volumes are steady and slowing edging up, albeit from a decline through 2017. Median sales prices are strong and edging up at a rate ahead of core inflation, and the key clearance rate remains high - all indicative of an active property market.


SALES VOLUME

Overall sales of properties across NZ outside of Auckland remains flat. The latest 12 month total of 53,142 is almost in line with the annual total in August of 2017 some 16 months ago. In that time annual sales have hardly moved hovering around the 52,000 to 53,000 level. It is clear though from the chart below that whilst sales volumes have been flat they are at a historical level that is significantly higher than most of the past decade.

NZ property sales exc Auckland 2008 to 2018

PRICING

Unlike the situation in Auckland where sales prices have remained stagnant for well over 2 years, the median sales price for the rest of NZ outside of Auckland continues to rise. December median sale price of $480,000 represented the 89th consecutive month of price appreciation. It was way back in August 2011 that the median sale price for property sales outside of Auckland last saw a negative year-on-year movement, that is over 7 years ago.

Yr on Yr variance in median sale price for property sales in NZ outside of Auckland 2008 to 2018

Back in August 2011 the median sale price was $304,500 for all sales outside of Auckland. Over that 7 year period sale prices have risen 58%. However this increase is behind the increase seen in Auckland over the same 7 year period which is 88% rising from $458,000 to $862,000.

Median sale price for property outside of Auckland 2008 to 2018

CLEARANCE RATE

The activity levels in the property market in areas of NZ outside of Auckland remain strong. The clearance rate of sales to listings ratio remains above 70% which as shown in the chart is high and edging upward, at the same time the trend of median sale prices remains steady with a c.7% year on year increase. These collection of core metrics demonstrate that outside of Auckland (which is undoubtedly experiencing a stagnant market) the rest of NZ moves along at a healthy pace with no easing in demand as property sales remain active and price pressure remains.

Clearance rate analysis of property sales to listings for NZ exc Auckland 2008 to 2018



Quarterly Property Review for NZ outside of Auckland - Q3 2018

by Alistair Helm in


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The Auckland market is now firmly a buyers-market and the near term outlook is for a continued weakness well into 2019 based on the latest clearance rate and stagnant sales volume. However looking beyond the City of Sails reveals a property market for the rest of the country still experiencing healthy activity, with prices edging upwards, although that rate of increase is slowing.


SALES VOLUME

The latest 12 month total of property sales outside of Auckland up to and including September of this year was 52,998. This represents a small fall of less than 100 as compared to this time last year. The market volumes are certainly plateauing and have fallen by 15% from the peak of sales in August of 2016.


PRICING

The median price of property sales continue to edge upward with a 9% year-on-year increase in September taking the median to $466,730. Whilst the past year has seen strong year-on-year increases of between 6 and 8 percent, the actual median prices have been fairly flat indicating that the next 12 months will likely see percentage increases slip to virtually nothing.


CLEARANCE RATE

The latest analysis of the clearance rate (which tracks the moving annual total of property sales against the same time period of new listings indicating the core activity in the market) shows a slight weakness in the September data in many ways similar to the weakness witnessed in a more significant manner across the Auckland market. As highlighted in the analysis of the Auckland market the opposing forces of supply, finance and broader economic indicators are leading to a weaker market and maybe these self same factors are beginning to impact the market outside of the City of Sails. It is a fact that the rest of NZ tends to follow the Auckland market and this quarters analysis would seem to support this hypothesis based on sales volumes, median price and clearance rate. The next few months heading to the year-end will provide that evidence when we come to report on the Q4 update in January.








The Auckland Quarterly Property Review - Q3 2018

by Alistair Helm in


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The Auckland market is in the midst of one of its most interesting phases witnessed in the past couple of decades. Typically we see Auckland experience a see-saw market - alternating between a booming market or a retreating market.

For fully the past 11 months, the market, coming off a steady 2 year decline in sales has stubbornly, resolutely and somewhat belligerently refused to succumb to further decline; however and this is the unusual part, the market has not in anyway shown any signs of a resurgence, yet.


VOLUME SALES

Analysing sales volumes is critical in understanding the market and more importantly in identifying the future direction of the market. Simply put, rising sales tend to foretell a future rise in prices and equally the converse is true - this is somewhat simplistic but helpful as a rule of thumb.

So what to make of the market we have experienced since this time last year. A year ago the 12 month total of sales for Auckland stood at 22,781, it was the 23rd consecutive month in which sales volumes on a 12 month rolling basis had fallen. From a peak in October 2015 when the total was 34,060, volumes had fallen by 33%. However for the past 11 months sales volumes as seen on a 12 month rolling basis have not changed. Not changed; as in remained within a range of just less than 1,000. Here are the raw numbers and you can see how flat the sales have been.

October 2017: 22,278

November 2017: 21,788

December 2017: 21,608

January 2018: 21,614

February 2018: 21,619

March 2018: 21,350

April 2018: 21,435

May 2018: 21,554

June 2018: 21,561

July 2018: 21,661

August 2018: 21,645

September 2018: 21,615

This is an astonishing series of numbers - the mean variance from the median of 21,614 is just 34, representing 0.2%.

This unusual plateau in sales volumes is clearly seen in the chart below which shows the past 10 years, with the inset view of the full data since 1993. Simply put there has not been in the past 25 years a period when such a prolonged plateau has occurred.

Such an unusual trend calls for an explanation. Here are my thoughts around why, and also what may be the future trend.

The period from the peak in 2005 until November of last year was the classic end of ‘the Golden Summer’ - prices had reached a level that was becoming unsustainable and coupled with tighter lending restrictions, investors particularly, parred back activity in the market as yields became unsustainably low given the likelihood of low capital growth.

There can also be no ignoring the fact that the period of the past 11 months paralleled the duration of the new government, although I would judge this more correlation than causation. However the new government has placed housing atop the agenda, added to which the publicity of KiwiBuild has potentially enthused may first home buyers, but at the same time frustrated others as it clearly demonstrated just how long it takes to activate the supply side of the market.

Ignoring the political influence, the most likely explanation is that a plateau in sales volumes is the outcome of strongly opposing forces - cheaper finance, matched to limited supply of properties coming onto the market, added to which the tail end of strong price appreciation and a strong economy, all key factors continuing to drive demand. Facing off against this is tighter lending criteria in terms of LVR but also tighter debt servicing requirements from lenders, added to which have been growing fears of global economic uncertainty and that same consistent issue of limited supply of properties coming onto the market, in this instance working against the market.

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PRICING

So whilst sales volumes have plateaued, what has been the resultant movement in median price? It would come as no surprise to see that median prices have also plateaued. Proving the premise that rising volumes foretell rising prices as does the opposite. Equally a ‘standoff’ in sales trends to lead to a ‘standoff’ in price movement. Over 2 years ago Auckland median sales price topped $850,000 and since then prices have barely moved. For 6 of the past 9 months year-on-year variances have been down, albeit by no more than 2%.

The one variable that has not been analysed in the foregoing charts is new listings. Adding this into the mix provides what I consider the most robust lead indicator of the property market, that being clearance rate.


CLEARANCE RATE

In the last quarterly report published in August, with the data including July, I was confidently foretelling of a developing upswing in clearance rate and judging that the comments made at the time by the Reserve Bank Governor, that prices may be as likely to rise as to fall could be accurate on the upside. Well a further few months of data are now showing that prices may in fact be more likely to fall in Auckland as to rise. For the much heralded recovery in clearance rate has had a significant set back as shown in the chart below.

The fact of the market is that a stagnant level of sales is facing off against rising level of new listings which have lead to a drop off in the clearance rate which is significant and a setback to the heralded recovery. The rise in inventory is not to be unexpected at this time of year, however, remember this clearance rate is based on 12 months of moving total data of both new listings and sales and therefore excludes seasonal influence and more accurately therefore reflects true underlying market trends.

It therefore looks more likely that the Auckland property market is going to continue to face strong head winds in the coming months with a potential slide in prices as a buyers-market takes hold and sellers learn to adjust expectation in order to win that sale and in so doing allow themselves to become tough negotiators with their buyer-hat on.


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!