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.

Auckland median sale price trend 2000 to 2018.png

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.

Auckland median sale price variance 200 to 2018.png

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



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.


Quarterly Property Review for NZ outside of Auckland - Q2 2018

by Alistair Helm in


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As I have commented recently, I've made a conscious decision to cease to produce data analysis on what is seen as the "NZ Property Market" - the fact is this aggregation is really no longer as relevant, given how distinct the property market is between Auckland the rest of the country. So this is the first of what will be a quarterly report for the aggregation of property data for areas outside of Auckland, complementing the separate report for the Auckland market.

The brief overview of the property market outside of Auckland based on data up to and including July, shows a relatively healthy market with good clearance rate, sales volumes fairly static at a strong level, with prices continuing to rise with mid single digit year-on-year growth.


Volume Sales

From a volume sales perspective - annualised volumes are steady at around 52,000, a level that has been consistent for around 9 months. The past 4 months has seen a very slight increase but not enough to yet call it a upturn. This level is down 16% from the last peak of sales which was close to 2 years ago, far less than the fall seen in the Auckland market which was 37% from peak.

NZ property sales excluding Auckland 10 yrs to Jul 2018

When seen as annual variances in monthly sales, the picture shows modest rises in sales comparing each month with the same month in prior year with barely a perceptible trend up or down.

Property sales for NZ exc Auckland 2000 to Jul 2018 variance yr on yr

Pricing

In terms of pricing the median sales price over the the past quarter has marked time at the $455,000 level. Back in March the median price peaked at $460,000 and subsequently it has bounced around that level but not as yet exceeded it. The chart below tracks the year-on-year variance of monthly median sale prices over the past two decades, showing as it does how consistent property price appreciation has been over this extended period.

NZ median sale price property excluding Auckland 2000 to Jul 2018

Clearance Rate

I am very keen on this relatively new metric of the clearance rate as a tracking tool for the trends in the market. It is measured as the rate of sales against the rate of new listings - think of it as the available stock in a warehouse - if your clearance rate is below 50% then you will suffer the pressure of overstock and will need to adjust prices down to clear inventory. The opposite with a clearance rate of over 50% indicates strong demand which can create price inflation.

As you will see from the chart below the clearance rate for NZ properties outside of Auckland is edging up, as it has been for most of this year so far. The point about clearance rate is that it is all about relative market activity so whilst sales are almost static this is matched to static new listings, within this market dynamic, the properties being listed are being sold at an ever increasing rate; and as the chart shows clearance rate tracks to a pretty close correlation to price inflation. It is also worth comparing the clearance rate outside of Auckland with that in Auckland. Auckland clearance rate is currently just 55% as compared to outside of Auckland at 68%.

Clearance rate of NZ property excluding Auckland tracked with median price movement 2008 to Jul 2018
 


I have added a modified version of the clearance chart below prompted by a comment from John - he was questioning the uneven scale range between price movement and clearance rate. I have used the 50% clearance rate as the midpoint and then adjusted the upper level to +25 percentage points as per the price movement and equally -15 percentage points to the lower level.

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The Auckland Quarterly Property Review - Q2 2018

by Alistair Helm in


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A bit later than planned here is the quarterly report. I've included the latest July property data to produce this analysis of the Auckland property market. As I have commented recently I've made a conscious decision to cease to produce data analysis on what is seen as the "NZ Property Market". The fact is this aggregation for all NZ property data is no longer as relevant, given how distinct the property market is between Auckland the rest of the country. That is why I will produce a quarterly report on Auckland and another one on New Zealand outside of Auckland.

The picture of the Auckland property market now with the benefit of a further 4 months data since the last report is showing a market in the doldrums. A situation that is actually quite uncommon from a historical perspective as compared to the rollercoaster that typifies the Auckland market.


Volume Sales

From a volume sales perspective - annualised volumes have remained at the level of 21,500 for virtually all of the past 9 months with just the vaguest sense of an increase in the past 2 months. Remember this is annualised sales so there is no seasonal factor to explain any movement. This level of sales remains at levels reminiscent of the post GFC period of a decade ago, far from the peak activity of 3 years ago. The decline since that time is significant 37% less sales. 

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When seen as annual variances in monthly sales the same visualisation of the market in the doldrums is reinforced. The typical cycles of the Auckland property market usually see a seesaw rise and fall, whereas the recent period has the appearance of a market just marking time; deciding if the next move will be up or down, almost mirroring the recent proclamation of the Reserve Bank Governor.

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Pricing

In terms of pricing the median sales price over the the past quarter has similarly marked time at the $850,000 level, although July saw this slip down to $835,000. It is now fully 18 months since the Auckland market topped out at $905,000 - subsequent months have seen prices bump around between a low of $820,000 and a high of $880,000. The chart below tracks the year-on-year variance of median sale prices over the past two decades.

Auckland median price movements 2000 to 2018

Clearance Rate

I am very keen on this relatively new metric of the clearance rate as a tracking tool for the trends in the market. It is measured as the rate of sales against the rate of new listings - think of it as the available stock in a warehouse - if your clearance rate is below 50% then you will suffer the pressure of overstock and will need to adjust prices down to clear inventory. The opposite with a clearance rate of over 50% indicates strong demand which can trigger price inflation.

As you will see from the chart below the clearance rate for Auckland is edging up, as it has been for most of this year so far. The point about clearance rate is that it is all about relative market activity so whilst sales are almost static this is matched to very low new listings, within this market behaviour the property being listed is being sold at an ever increasing rate and as the chart shows clearance rate tracks to a pretty close correlation to price inflation. 

NZ_Property_Report_monthly_data.png

So just maybe the Reserve Bank Governor was righter than he thought when he stated that there was as much chance that property prices would rise as they would fall!

 


The challenges facing a new real estate agent

by Alistair Helm in


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I’ve been a fully licensed real estate salesperson for 3 months and I thought it would be interesting at this point to share my thoughts, experiences and insights. Valuable, I hope for others who may be thinking of embarking on this career path and also potentially a valuable reflection piece for those already established in this industry.

The fact is real estate is tough. There is a saying I remember from years ago and echoed at a recent training session “Real estate is simple, but by no means is it easy” – it is true; if a little overly simplistic. The fact is real estate in 2018 is a detailed process-based business with a high degree of legal requirements and obligations, more so each year. As I stated in an earlier article tracking the process of studying for the Certificate in Real Estate, there are 30 Acts of parliament that are studied on the course and all potentially have a direct impact on this process and need to be understood and adhered to by all agents.

However, long before you ever get close to talking to a buyer or seller and providing any form of service, the life of a newly licensed real estate is all about building a profile and making an impression so you can be seen at least as relevant. It’s all about building a brand. This is so key. The hard truth of this industry is that there is no shortage of real estate salespeople. Nowhere around the country is currently underserved by a real estate agent; and in the main cities there will be tens of capable, experienced and competent agents ready at the drop of a hat to list a property for sale. So this is the highly competitive marketplace into which you need to launch yourself and create a point of difference, and even before that, just get to be seen and known.

Real estate is a numbers game and in general terms the numbers (the odds) are not great. At any one time there are probably around 20,000 people in NZ actively involved in selling their home, that’s less than half a percent of the population – 1 in 200. However this group who are easy to target are not the audience you want to reach out to and engage in order to succeed to gain a new listing.

The target audience you want to address are the people in the stage before that. A very short window in which people who have possibly been looking to buy, get that confidence to say “right let’s going, let’s get our house on the market and let’s buy that new property” – I suspect that audience is fewer than 1,000 any one time and  with 14,000 agents in NZ today ready to serve that market that’s a highly competitive environment for a new agent to take on well-experienced and established operators. Imagine trying to identify that target audience in your local area, you are talking about a needle in a haystack; 1 person in 4,700 – virtually impossible. What you have to do is rely on connections and engagements. That is why agents constantly reach out through networks, make new connections, market extensively and make proactive approaches to everyone in their local area. For unlike established agents, new agents have no referral network of previous clients to rely on for future work or referral.

In my case from the outset I chose to focus and leverage on two clear points of difference when compared to my well established local competitors. These were my analytical capability focused on local property market trends and insights; matched to my unique and extensive experience in digital property marketing. That was the easy part, the hard part was to communicate these capabilities and break through the paradigm that sees people use the same agent time and again or rely on agent's presence (existing listing stock) as the arbiter of the decision of which agent to use.

As I will highlight in a forthcoming article this decision making process in selecting an agent, based on a survey I am currently undertaking is heavily skewed to established agents.

To substantiate my analytical capability of the local property market I am writing and publishing a hyper-local property report for Devonport each month. I maintain a detailed database of property listings and sales, enabling me to publish this report early in the month. This initiative is already bearing fruit with a growing subscriber base for the full email version of the report which enhances my brand awareness and my role and is supplemented through the publication of the abridged report in the local fortnightly local paper The Flagstaff.

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However passive marketing is as ever, a slow build. The massive hurdle that needs to be overcome to really kick-start an agent’s career is getting a listing; this is the mark of credibility. However the ‘chicken and egg’ conundrum kicks in – how to get a listings without having the credibility of a listing? This is where the numbers game comes back into play. You need to try a myriad of initiatives to see if somewhere, something bears fruit. As I described it the other day when sharing experiences with my fellow Bayleys newbies – it’s like growing crops, you have to sow masses of seeds and tend and nurture the ground, feed and water and eventually shoots will arise – it takes time, patience, fortitude and tenacity.

Here is a selection of the initiatives I have undertaken to date.

-       I held an local event with Bernard Hickey invited to speak about property and the economy. An excellent foundation with over 60 attendees

-       I personally door dropped over 500 flyers for Bernard’s event

-       I distribute my monthly property report to properties on the market. Sure these properties have an agent, but if the property remains unsold I want to make sure the vendors know of my presence should they decide to change agents in the future. This I see as classic reciprocity, I share the value in my report which has real contextual relevance and thereby establish my brand credentials

-       I target local streets where recent sales and listings have been active and communicate through personalised letters to all home owners with my property report and insight as to the local market dynamics. There is well know fact that properties tend to come onto the market when those around them are listed - a strange correlation that I think needs investigating!

-       I target private sellers offering my experience and advice on marketing, seeing if I can be of assistance to build trust and hopefully a future listing if they stumble in the process themselves

-       I contact owners who are undertaking renovations to discuss latest online valuations and the potential value-add of the work they are doing

This is sample of the tactics I have employed to date. To this you can add digital marketing through Google Adwords, Trade Me advertising, Facebook promoted posts. All focused to drive traffic to my personal brand website which I have tweaked regularly as I have reflected on what I can do to trigger the right engagement with my prospective target audience. I've also had produced a personal brand video so as to allow people to evaluate me as a person.

 

So what success so far?

– well as of today there is no listing with my name on it.

However there are germinating seeds which I am confident are soon to blossom. I have a client who will sell their home, however my task is to find them their next home which is challenging, but exposes me to the world of being a buyers’ agent which is a valuable experience. I also have three further clients for whom I am working to find them their next home and hopefully from that I may gain another listing or two. I am also working outside my home area when helping people as a buyers' agent which is surprising and valuable.

As I have said it is a numbers game. I should think that over this first 3 month period I have engaged and contacted over 250 people in my local area directly, plus an unknown number through other marketing. I’ve already invested over $12,000 in real cash in this new business of being a self employed agent which does not take into account the cost of my time everyday I work in this business, nor the cost of the time studying for the course and certificate.

The brutal fact is that more than half of all agents do not remain in the industry past 6 months, I am at the 3 month stage. I am sticking with it, I can see the future and I am confident that I can establish myself in this industry and deliver a professional service that is respected and valued. I’ll keep you all posted with future articles in the coming months.

and by the way...

I almost forgot this. If anyone tells you or you suspect that establishing yourself as a new real estate agent is a lifestyle choice, then tell them politely from me - if you are prepared to let that lifestyle consumes your every waking moment 7 days a week with no hope of a holiday then they clearly they are open to a new form of lifestyle.

Sure I choose to work where and when I like, but every moment you are not thinking about where the future business will come from, you will be worrying about where that future business will come from. Just some advice!


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. 

 


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!