Auckland property market shows little sign of life

by Alistair Helm in


The first of the monthly property data is in and it does not bode well for those thinking / hoping that the election in September had in some way held back the market and that the traditional Spring surge would arrive albeit late in October.

Sales as reported by Barfoot & Thompson were down on last month and last year. Now normally sales volumes in October are around 10% higher than sales than September, this year sales for Barfoot & Thompson in Auckland fell 2% compared to September and as measured against last October sales were down 22%.

October was the 9th consecutive month to show year-on-year declines in sales volumes. Measured on a 12 month moving average sales in Auckland for Barfoot & Thompson has fallen from a peak 12 month total of 13,232 in October last year to a total in the 12 months to date of 11,699.

Barfoot & Thompson is a fairly accurate bell weather for the national statistics which have seen the same trend of moving annual total peak a year ago and continue to decline through this year, resulting in what is looking to be a 2014 calendar year total sales of just 70,000 down from 80,000 in 2013.

 

Sales below $400,000

Delving into the richer analysis of property sales by price range shows a continuing trend of fewer sales in the lower price segment of the market in Auckland. Barfoot & Thompson October sales in the $400,000 and below segment amounted 126 of the 939 total sales in the month, that represents just 13% of all sales.

A year ago that segment represented 22% of sales and back in 2010 38%.


These numbers reflect the combined impact that as the median price creeps ever higher in Auckland (Barfoot &Thompson Oct '14 $655,000) there are simply less properties to buy and therefore to sell below $400,000 added to which the LVR impact has hit this segment. The $400,000 and below segment is fast disappearing from the Auckland property landscape.




The Auckland property market is cooling

by Alistair Helm in , , ,


The latest batch of property statistics provide what I think is a vital support to the view that the Auckland property market is cooling. 

A year ago the Auckland market was powering on at a pace. In its September 2013 monthly housing market update Barfoot & Thompson reported year-on-year sales up 14%, with the median sales price up 14%. At the same time the inventory of property for sale on the market as measured by the Realestate.co.nz NZ Property Report slumped to just 11.5 weeks down from 17 weeks a year earlier .

Examining each of these key metrics of the property market a year later we will see just how much as changed in the past year and supports the view in my opinion that the heat has certainly come out of the Auckland market.

 

Property Sales

Sales are the leading indicator of property demand and as the chart below shows the trend is down.

Monthly sales as reported by Barfoot & Thompson who representing close to 40% of all Auckland sales provide a robust view of the market. Their data shows sales in the 9 months so far of 2014 below the 2013 level for 8 of those 9 months, with the differential if anything growing wider in the past 3 months with September down 13% as compared to a year ago.

 

Listings

New listings coming onto the market provide a view as to the confidence in the market amongst sellers and as the chart below shows the level of new listings is down in all but 2 of the months of 2014.

From Realestate.co.nz data total listings across the Auckland region in the first 9 months of 2014 amount to a total of 30,449 as compared to the same 9 months of 2013 at 32,484 down 6%.


Inventory

With sales in the first 9 months of 2014 down 12% and the level of new listings down 6% it would come as no surprise to see that the inventory of property for sale has been rising in 2014 as the chart below demonstrates. 

This metric of inventory of property on the market uses the current rate of sales to estimate the time it would take in theory to sell all the property on the market at the end of September. It certainly shows a significant improvement in the weeks of inventory. In case you were wondering if the actual number of listings was higher this year than last year the chart below will answer that easily. It may not be as significant a rise in inventory but there are more properties for sale at the end of September this year than last and of course fewer are selling.

Sales Price

Sales price tends to lag sales volumes which tend to reflect demand and supply as measured by inventory and new listings. The chart below based on Barfoot & Thompson median sales price indexed to the January sales price in each of the past 3 years shows a strong start to this year but since April the median price has hardly moved with the September level barely up on August.

So in summary. Sales are down, new listings are not flowing onto the market as sellers lack confidence, this is lessening any pressure in the market from buyers who are subdued and as a consequence the pressure of constrained inventory has lessened and this has signalled a plateauing of property sales price. In short - the heat has come out of the Auckland property market. 


Auctions are once again dominating the Auckland market

by Alistair Helm in ,


Earlier this year there were signs that auctions had lost their lustre, but examining the past 7 days of new listings coming onto the market in Auckland shows that close to half of all new listings are being marketed as auctions!

Here are the facts - between September 22nd and today (the 29th), 808 properties have been listed across the Auckland region from data on Realestate.co.nz. Of this total 400 are being marketed as an Auction. Over the month of September a total 1,113 properties on the market today are marketed as auctions which represents 43% of the total of properties listed in the month. Of course properties listed in the first week of September with a 3 week campaign will now most likely be sold, thereby explaining the difference between the c. 50% in the past 7 days and 43% for the past month.

Clearly auctions are the hot topics and the most favoured method of sale.

But as ever the question should be asked as to the success of auctions. However when it comes to the success of auctions, this is where interpretation of figures becomes something of an art form!

Last week there were a couple of media articles which showcased auction performance.

The NZ Herald on Saturday examined the Barfoot & Thompson auction in the city office and stated that they sat through 27 auctions of which 11 sold under the hammer with 10 passing in below reserve and 6 with no bids - a 41% success rate. The article went on to quote Peter Thompson reporting a 55% success rate - this number being the total of 11 sales plus a further 9 properties which had sold prior to auction. Now you can see why reporting on auction success is an art form!

The article quoted Harcourts saying that at a Christchurch auction in the week there were 23 sold from 25 presented at the Harcourts Grenadier offices in the city. Across the city another Harcourts office (Gold) reported selling 10 from 15 under the hammer.

Now none of these figures will surprise as circumstances at every auction event will be very different and so will be the outcome. However in my mind the key matter in reporting auction success is simply this. Success is defined as how many properties of those offered at ann auction event are sold under the hammer or at least within the next working day as is now the defined period under the Fair Trading Act. It is not relevant or appropriate to add to this list properties sold before the event (even if they were sold at an auction) nor properties that sold outside of this defined new time period.

I applaud Barfoot & Thompson who have embraced this new law change in their publicity of auction performance as they now simply detail (i) sold under the hammer (ii) sold prior (iii) sold by 5pm next working day to arrive at total auctions. However they have ceased to detail total passed in as they used to do.

I have been keeping a record of these monthly reports from Barfoot & Thompson for the past 18 months and as you can see they provide a vital snapshot of the Auckland market (accepting for some months of no data).

t the peak of the property cycle back in first half of 2013 Barfoot &Thompson were reporting property sold under the hammer (plus on the day) consistently exceeded 40% of all monthly sales. Through the first half of 2014 this had fallen to less than a third in March and May, although April was incredibly active and successful. The last two months though have seen a fall off. It will be interesting to see the September results.

Looking outside of Barfoot & Thompson and the Auckland market the REINZ data of auction sales is the most reliable. I would have to qualify that statement though by saying that the data of auction sale has no clear definition. I would hesitate to guess that it simply relates to the sale of properties which were listed as being an auction irrespective of how the sale  was concluded. 

The data for the past 3 full years shows this interesting trend based on the first 8 months in total for each of the past 3 years.

 

Auckland auctions rose significantly between 2012 and 2013 (27% to 37%) before easing off this year, however the focus of auctions has certainly spread outside of Auckland where now the proportion of sales represented by properties marketed as auctions has risen consistently to now represent 8.5% of the total sales outside of Auckland (equivalent to 1 in 12) in the first 8 months of this year.

It certainly appears that auctions are once again the most preferred method of sale for Auckland agents and a growing number outside of Auckland.


A lost generation of property buyers?

by Alistair Helm in


The latest report from credit ratings company Veda for the past 3 months tracking credit demand shows what they describe as Gen Y "Property Orphans" - people aged under 28 who's collective demand for mortgages has dropped by a third in the past year whilst at the same time their demand for personal loans and credit cards had increased.

When asked by media reporters about this report I stated that this was likely caused by a combination of factors, one of which was the generational change that is seeing young people question the achievability of home ownership as they in some cases choose renting as a lifestyle choice with the inherent flexibility and lower commitment to a particular lifestyle and attendant financial responsibility. 

Certainly the LVR restrictions have dampened demand as it has become harder to secure a property purchase with the more common requirement for a 20% deposit, equally recent interest rate rises have increased the costs of home ownership whereas the costs of renting have not risen by as much. There is no doubt that buyers can secure mortgages with a deposit of less than 20% but the signals and commentary in the market constantly talk of the hurdle of 20% deposit and with prices in the main cities topping $500,000 on average that is a massive ask to raise $100,000 when most prospective asspiring homeowners under 28 years are probably still encumbered with student debt.

One of the difficulties in assessing the real drivers behind decisions in the property market is the lack of granular data. We do not have accurate and credible data on first home buyers. Yet we so often see articles which seem to speak to assumptions that sales of low price property or LVR impact is a result of fewer first time buyers.

We may not have such data, however other countries do and it is timely that I found this chart from the UK which tracks the number of mortgage loans made to first time buyers since 1979.

This is quite a striking demonstration that first time buyers started to be priced out of the property market as early as 2003 and 2004 as property prices in the UK took off, that demand plummeted again during the GFC - exactly mirrored in NZ. The recent resurgence in the UK is what might be regarded somewhat as artificial as  government initiatives such as "Help to Buy" has been encouraging this group of first time buyers to get onto the property ladder with low deposit government back schemes coupled with record low mortgages interest rates. The contrast with NZ could not be more striking with LVR restrictions and interest rises of the past 12 months severely constraining first time buyers.

The only NZ data of a similar nature that might allude to this lost generation of property buyers is this recently published chart from  Core Logic which shows an extensive historical data of property sales and the representation of these sales as a proportion of all stock of housing.

The key takeaway from the chart is the shift in transaction levels over the past 30 years. Whereas 30 years ago, even 10 years ago monthly transactions represented around 0.8% of all households in the country, but that level has fallen to around 0.5% for what is closing in on the past 10 years.

It is not appropriate to draw a single conclusion from this data, that it is a function of the decline in first time buyers but it would be possible to intuit some potential impact from this trend as a reason behind the lower relative transactions as with less first time buyers creating demand to get on the property ladder leads to lower overall transactions levels.

Again we lack the granular data to be able to assess such issues with certainty, compounding this is the fact that such data only really becomes valuable when there is an extensive historical archive upon which to analyse, however if we never start recording such data no such archive will ever exist.


The seasonal factor in the property market

by Alistair Helm in ,


The belief amongst the real estate community is that the traditional spring surge in activity has only momentarily been delayed this year on account of the election. The hope is that now we have the election behind us the market will kick into gear. In my opinion there is no statistical evidence to support the view that the election has caused any dampening of the property market, not this election at any rate, there was certainly evidence in past elections.

However, irrespective of the election's impact, the reality is that the market will see a flurry of activity in the next couple of months leading up to Christmas. The fact is Spring is the most active time of year for property listings. Analysing the data for the past 7 years shows that the Spring months of September / October / November sees over 10% more properties come onto the market than would be the case for the proportion of the year made up by a 3 month period. At the same time as listings rise 10% above normal sale only rise by 3% compared to normal.

This vital insight which is presented in the chart below highlights some interesting facts about buyer and seller behaviour over the key seasons of the year.

From a buyer perspective the best time of the year is Spring as the proportional level of new listings is much higher than the proportional increase in sales as there is generally a better selection of properties on the market and less competitive pressure.

For sellers the best season is the Winter when new listings are over 10% lower than normal but sales only decline by around 4%. Equally the Autumn period is relatively good as the rate of sales increase compared to normal is higher than the rate of listings increase. It is the most active time of the year for the industry.

The Summer period is challenging for both buyers and sellers, relative sales levels are well below what would be for a normal 3 month period but listings are quite closely aligned with a similar level of drop off.

It certainly pays to think before making the decision of when to sell and when to buy. Naturally the decision of when you want to move house is more often influenced by external factors which means you don't have a choice but if you do, then choose wisely.

 


The regional view of Auckland's property market

by Alistair Helm in ,


I hope I can be forgiven for focussing repeatedly on the Auckland property market. I know there are other regions of the country and they have quite unique property markets impacted by factors far removed form those of Auckland. The fact is though, that Auckland is the largest region, accounting for around 36% of all sales nationally added to which the data for Auckland is just that bit more comprehensive.

Up until now the analysis I have undertaken of the Auckland market has been restricted to seeing it as one market, however the data is available to analyse the region across what are still recognised as the historical boundaries of North Shore, Waitakere, Auckland City and Manukau. So I have crunched the numbers to paint a clearer picture of what has been going on across these four regions over the past 6 years. 

As a reference point I undertook some evaluation of the multiplicity of property data on the Auckland market recently and determined that the key data was the REINZ Stratified price index and the QV valuation index. However when it comes to the regional data there is no stratified data published by REINZ so I have used the median price data calculated on a 12 month moving average. This method provides a clearer view of trends.

But before looking at the price trends, let's start with volume sales. On average 2,100 sales a month are completed across the Auckland region with Auckland City representing the largest share at 39%.

In terms of sales trends over the past 6 years I have indexed sales to the 12 months moving average to January 2008 at 100. 

As can be seen the most active region has been the North Shore which rebounded first and most significantly from the property crash and has gone on to lead sales growth over the past 6 years. Having said that it was also the first region to peak in September last year and is now closing in on the same sales levels as 6 years ago.

The Waitakere region has seen a very strong growth in sales over the past 2 years although sales peaked in December last year and now have slipped below the base of January 2008.

The performance of the Manukau region is the weakest of the 4 regions suffering the largest fall off through 2008 and then again in 2010 and has not attained the level of sales achieved through the 12 months to January 2008. 

In terms of price appreciation I have used the same method I use for the Property Dashboard which is to calculate the variance between the current 12 months moving average median price and the prior 12 months moving average median price.

The chart below tracks the 6 years from January 2008.

The most significant region is Waitakere which has witnessed a recent marked rise in property prices starting in December 2012 at 5% year-on-year growth and rose very steeply for 12 months to hit 20% year-on-year growth before tailing off in the past 6 months.

The other regions have equally seen price appreciation rises of up to 15% over the past 2 years although all have seen a tailing off of growth. As with sales performance the Manukau region continues to lag the other regions of Auckland.

 


July Property Market Statistics

by Alistair Helm in ,


graphs iStock_000015752104Small.jpg.png

The latest set of data released by the Real Estate Institute provides a further update on the state of the property market around the country. I have taken the details of sales volumes and prices and inputed them into charts to provide some clarity around the key trends and what that can tell us about the current market and the outlook for the next year.

 

Sales Trends

In terms of property sales the number of sales per month keep slipping - 5,893 properties sold in July, down 13% as compared to July last year. This takes the total for the first 7 months of the year to 42,057 as compared to the first 7 months of last year with a total of 47,423 a decline of 11%. 

The market peaked in October last year when the moving annual total hit 80,677. The current moving annual total has slipped to 74,753 as shown in the chart below.

Property sales are the lead indicator of the market and as such tracking a trend in sales is key to the potential future outcome of the market in price movements. As such the next chart is important as it looks at a 3 month moving average period of sales data. This is showing a change in the trend in sales volumes as the rate of decline is reversing and potentially in a couple of months we could well be seeing year-on-year increases again.

The factors behind this reversal of the decline in sales is a shift in the balance between the positive effect of the broader economic growth pitched against the financial constraints placed upon the market by the combination of LVR and rising interest rates. There is no doubt that the latter has had a major impact on sales coming as it did (far from coincidentally) starting in October of last year. However I suspect that the improving sentiment around recent references to delays in future increases in interest rates and potential loosening of LVR policy may be bringing about this reversal with the underlying economic strength winning through.

 

Price Trends

Pricing as stated earlier is more of a lag indicator of the property market and this is seen in the latest set of statistics of the Stratified Median Price Index from REINZ. The data is reported monthly for each of the main 3 metro areas as well as the whole of NZ and the balance of the North Island and the balance of the South Island excluding these main cities.

Detailed below are the chart for each of these 6 views of the property price trend covering the past 7 years tracking the latest data for July matched to the peak of the market pre-GFC and the bottom of the market in late 2009.


New Zealand


Auckland


Wellington


Christchurch


Other North Island (excluding Auckland / Wellington)


Other South Island (excluding Christchurch)


Does the General Election impact the Property Market? (Updated)

by Alistair Helm in ,


It is a question that I have often heard asked.As well as being a regular explanation made when laying the blame for a period of quieter sales leading up to the general election.

So the question is - are there any facts that can be brought to bear to substantiate or dispel this belief? I have never seen any factual analysis - that is until now!

There have been a total of 7 general elections held over the past 22 years for which accurate property sales statistics have been kept by the Real Estate Institute. That should be sufficient data to provide some insight.

The question is then how to evaluate the period running up to the election as compared to a normal period to see if there is an effect? A further and broader question: is when is there ever a normal period in the property market with so many variables at work? In my view looking at year-on-year sales volume variance is not robust enough; whilst it deals to the seasonal factor it is open to the influence of different stages of the property market cycle.

The measure I have came up with is a seasonal comparison. It uses the 3 preceding months leading up to each general election date and calculates the representation those months were of the total sales for that year. I then compared that % representation as a single figure against the normal for the same 3 months of the year based on a larger set of preceding data going back to 1992. In other words to take the example of the last general election in November 2011; I took the sales for the months of August / September / October of 2011 and calculated that against total sales in 2011 which was 8.84% I then compared that to the normal average of the months of August / September / October across all years from 1992 to 2010 which was 8.59%. So in this particular case I would say that that election in 2011 saw no negative impact on property sales in the lead up to the election, in fact sales were slightly ahead of normal.

Here is the result of this analysis for each of the 8 general elections since 1993.

What to make of these results?

You could say that on average general elections depress property sales as 5 of the 8 elections caused property sales to decline as compared to normal. However there is no real consistency. The completely and significant opposing variance in the results for 1993 and 1996 are too significant to ignore.

I did look at the issue of political leaning of elections as a factor. National won the '93 & '95 elections and the '08 & '11 elections which saw varied outcomes, whereas Labour's impact in winning the other elections all of which lead to falls in sales - maybe the political factor is key?

Without a convincing answer I reflected on the impact economic sentiment has on the property market at the time of each election. I plotted these variance to the norm for the 3 months run up to each election against the GDP trend from Reserve Bank data.

Now in my view this correlation makes sense and aligns the election to the cycle of GDP as follows:

1993 - GDP on a surge, economic optimism = 14% rise in relative sales

1996 - GDP declining, economic pessimism, compounded by first MMP election = 19% decline in relative sales

1999 - GDP starting recovery from Asian crisis, economic caution = 7% decline in relative sales

2002 - GDP cautious recovery from post 2001 falls, economic caution = 2% decline in relative sales

2005 - GDP declining, economic caution = 1% decline in relative sales

2008 - GDP collapsing, economic pessimism = 5% decline in relative sales

2011 - GDP recovery, growing economic confidence = 3% rise in relative sales

So it would be safe to say that not surprisingly the impact of an election on the property market is more a reflection of the economic confidence at the time than any across- the-board view that elections dampen property markets.

As to September 2014 well with one month's data in the system, I am sorry to say for all those looking to blame the election for a dampening of sales results - doesn't look like it!

 


Detailed below is the full table of data:

Date of General Election3 months preceeding election     Avg of 3 monthsVariance to the normWinning partyTermNotes
            
6-Nov-93Aug Sep OctActual monthly representation9.35%9.34%9.60% 9.43%14%National2nd termSwing to Labour
 NormControl norm8.14%8.14%8.45% 8.24%    
            
12-Oct-96Jul Aug SepActual monthly representation6.20%7.27%7.41% 6.96%-19%National3rd term1st MMP election
 NormControl norm8.25%8.67%8.80% 8.57%   Weak National
            
27-Nov-99Sep Oct NovActual monthly representation7.99%7.89%8.51% 8.13%-7%Labour1st termSwing to Labour
 NormControl norm8.35%8.75%9.21% 8.77%    
            
27-Jul-02May Jun JulActual monthly representation8.92%7.36%7.67% 7.99%-2%Labour2nd termWeak National
 NormControl norm8.52%7.89%7.93% 8.12%    
            
17-Sep-05Jun Jul AugActual monthly representation7.68%7.79%8.22% 7.90%-1%Labour3rd termResurgent National
 NormControl norm7.90%7.91%8.23% 8.01%    
            
8-Nov-08Aug Sep OctActual monthly representation7.52%8.02%7.96% 7.83%-5%National1st termStrong National
 NormControl norm8.14%8.14%8.45% 8.24%    
            
26-Nov-11Sep Oct NovActual monthly representation8.54%8.17%9.81% 8.84%3%National2nd term Defeated Labour
 NormControl norm8.14%8.45%9.17% 8.59%    
            
20-Sep-14Jun Jul AugActual monthly representation8.12%   8.12%1%TBA  
 NormControl norm7.99%7.94%8.14% 8.02%   



Update: 22 September

With the election now over it is useful to add in the remaining months of July and August to make an assessment as to whether the 2014 election did impact the property market.

Sales in June as detailed above equated to 8.12% of the year, July equated to 8.36% and August 7.64% - these results take the average for the 3 month lead up to the election to 8.04% which is just slightly ahead of the expected 8.02% - that would seem to indicate that the property market was not effected by the election.



The shortage of property myth

by Alistair Helm in , ,


It has been a constant refrain of the property market commentary for many years - "there is a shortage of property on the market"; "property shortages driving up prices" etc.

The reality is that compared to 2008 there is a shortage.

In that year there were 163,488 properties listed for sale and sales totalled 56,071 indicating a clearance rate of just 34%. Compare those figures to the latest data showing that in the past 12 months just 130,307 new properties listings were added to the market. Sales over the past 12 months to June 2014 have totalled just 76,637 indicating a clearance rate of 57%. Simply put more of the properties that are listed today are selling than in 2008 and the number of properties listed is down significant;y.

However as with all statistics, every conclusion you draw is influenced by the data set you choose. 2008 as we all know was the start of the Global Financial Crisis and the worst year for NZ property for many generations. Judge anything against those days and the picture will be skewed.

If on the other hand you line up the data for the first 6 months of each of the past 7 years for which data is available, the picture is very different. (Note there is no listings data prior to 2007).

Total property listings for the first 6 months of each of the past 6 years have barely changed. This year, total listings have reached 63,436 properties listed for sale; hardly any change from last year or the prior year, 2010 saw a bit of a rise in listings. So to say we have a shortage of listings is stretching the truth.

The fact is that we now operate in a very stable supply market. Much as real estate agents may wish to see more properties on the market, the fact is levels in 2007 and 2008 are purely historic fact not a target to be achieved.

Even in Auckland where the pressure in the property market is judged to be felt the worst, listings are barely changed comparing this year to last or in fact any of the past 6 years - the Auckland property market is experiencing a steady supply of new listings. So steady that you could be fairly confident that the balance of 2014 will see a further 22,000 properties listed between July and December.

New listings Auckalnd Jan June.png

Clearly the number of new listings alone does not tell the whole story of the property market, especially in regard to pressure of demand on even a stable supply and so to the above stats you need to represent the level of property sales as in the chart below.

Across the country in the first 6 months of this year total sales have reached 36,164 down 11% as compared to the first 6 months of 2013, whereas listings have barely changed. In terms of a clearance rate in these first 6 months of this year the total sales of 36,164 represent, as noted earlier 57% of the new listings. A year ago the figure based on the first half of 2013 was 62% indicating that there is less success in property sales and therefore clearly no shortage.

Focusing on the Auckland market there is no doubt that here the clearance rate of property is far higher. For the first 6 months of this year a total of 15,090 properties have been sold with a total of 21,002 new listings - a clearance rate of 72%. The same time a year ago the clearance rate was 78% indicating the easing in any pressure in this market over past year with that steady supply and slowing sales - therefore no shortage! 



New Property Dashboard brings greater clarity to the state of the property market

by Alistair Helm in , , ,


The current Property Dashboard has proved to be of great value to buyers, sellers and agents alike as over the past 15 months it has grown to be one of the most accessed (and thereby hopefully valuable) parts of this site.

However I have felt that whilst its simplicity of design has been appealing, its measure of the market based purely on inventory was somewhat limiting. To really get a sense of "what's happening in the property market?" needs a view into two other key metrics to add to the available inventory of properties on the market. These are the pace of the market and the trend in prices.

I have therefore undertaken an upgrade to the Property Dashboard and extended it from a single gauge to 3 gauges.

I have in addition to adding these two new gauges for 'pace of the market' and 'price' adopted a consistent approach to the colour segments so a to ensure that each colour represents a consistent state of the market seen across the three measures of the market as detailed below:

Properazzi Property Dashboard - June 2014.png

I have at the same time undertaken more analysis of the 5 years of data from Realestate.co.nz from their monthly NZ Property Report and the REINZ data for the same 5 year period to ensure the segments of each gauge reflecting the Stable Market / Declining Market / Heated Market are reflective of the current state of the market

An important differentiation of the new Property Dashboard is that the core data-set for price trend and pace of sales uses 12 months moving averages. By use of this measure, the dashboard will not present erratic swings month-by-month but will reflect a trend that can be seen month-on-month providing a better evaluation of the current state as well as the emerging trend of each market across the country. 

The new Property Dashboard is published for each of the 16 regions of the country for where consistent data is available from REINZ and Realestate.co.nz. Unfortunately due to changes made to the monthly reporting by REINZ, regional data for dashboards of the Coromandel region, the Wairarapa and the Central North Island regions are no longer available.

The Property Dashboard will be updated monthly upon the release of the relevant data from REINZ and Realestate.co.nz which is likely to be around the middle of the month.

 

Property Dashboards for all regions of New Zealand



New builds and property sales follow a very close correlation

by Alistair Helm in


Recent data shows that new construction consents are growing at the fastest rate since 2002, with the seasonally adjusted "work put in place" up by 15% for the first 3 months of this year. This level is welcome news to the politicians who I suspect have been endeavouring to fast-track new consents and in so doing alleviate the shortage of housing we constantly hear about especially as Auckland's populations expands and Christchurch gets down to the rebuild.

For me the issue I was most interested in with this latest data is as to whether there is any correlation between the level of new builds and the level of property sales and if so what impact one can have on the other.

Diving into the data shows that based on the statistics of the past 12 years, it would seem to indicate as seen from the chart below that the trends of property sales and new construction consents track fairly closely.

The data would seem to suggest that there is a lag between consents and property sales. This turns out to be 6 months; which when aligning the consent numbers with property sales - 6 months in arrears shows an almost perfect correlation.

So having established that there is a correlation, and quite a close correlation at that (accepting that the past 6 months appears to be bucking this trend - more of that shortly) the question is why is that the case?

I can only make a supposition as to this correlation, but my hunch is that it all comes down to confidence. The property market in respect of volumes sales is a visible demonstration of economic confidence, at least in respect of the domestic residential economy. A rising level of sales creates the capacity for people to examine and progress on new construction whether that be custom construction projects (which typifies NZ home building) or group home builders. Increasing sales create liquidity in the property market are fuelled largely by easier capacity for finance and these combine to progress construction projects to the consent stage for design concepts that have been sitting awaiting a financial trigger.

Naturally with such a correlation the converse is also true and is shown through the data that a falling property sales market has a dampening effect on consenting of projects. 

The first quarter of this year as highlighted earlier is though very interesting, as we are for the first time witnessing a divergence of these two trend lines. Given the normal 6 months lag we should by now be witnessing the consent levels begin to tail off as property sales plateaued some 9 months ago. 

The clear assumption is that the construction rebuild of Christchurch and the extra focus on building on Auckland is driving this divergence. This may well be viewed as the successful adoption and implementation of policies at local and national government level.


Law change will effect the reporting of auction sales data

by Alistair Helm in


Auctions continue to be favoured by the real estate industry as an effective and efficient method of sale. In the past 12 months according to REINZ data a total of 15,865 properties were sold by auction representing over 1 in 5 of all property sales. In Auckland the numbers are far higher with over that same period 38% of all sales being by auction.

However underlying this data may be a correction “waiting in the wings” which may well have a significant impact on these numbers.

With effect from the 17th June 2014 an amendment to the Fair Trading Act as it applies to Buying and Selling at Auction comes into effect. The specific amendment that most interested me was this:

The Fair Trading Act auction rules treat the property as being sold at auction if it is unsold at the end of the auction but the auctioneer accepts within one working day of the auction an offer from a consumer who attended the auction.
— Fair Trading Act : Auctions in Action

I have long held the view that an auction sale should be defined only by the sale occurring on the fall of a the hammer, however the real estate industry continues to hold the view that a property brought to market as an auction and subsequently sold irrespective of when it sells - sometimes up to 7 days later is considered an auction sale.

It was only last week when Peter Thompson of Barfoot & Thompson made this statement in the monthly report of sales for May:

Vendors are still choosing auction as their preferred method to go to market. The success rate at auction is around 80 percent within a seven day period. This is because we are experiencing a trend towards properties that are passed in at auction either selling later the same day or within seven days of the auction

Next month such a comment would be judged to be misleading and inaccurate under the terms of reference of the Fair Trading Act. This advert for April auction results might well present a somewhat different picture.

This move will bring the reporting of auction results much more in line with Australia which publishes 'clearance rates' weekly within 24hrs and judges an auction solely by the fall of the hammer.

A further implication of the amendment is that once the working day period has passed then the transaction will no longer be considered an auction and therefore the use of the Auction Sale & Purchase Agreement will cease to be appropriate as the property becomes open for offers by private treaty between the vendors agent and the prospective buyer. This is of importance for buyers to appreciate as the purchase terms and conditions need to be re-stated on a new S&P Agreement.


Latest B&T data reinforces impact of LVR

by Alistair Helm in


Barfoot & Thompson published its Housing Market Update for May highlighting what is a clearly a slowing property market with the year on year sales volume down 14% as compared to May 2013. The trend of property sales is downward, from a peak in October last year the moving annual total of sales by Barfoot & Thompson in the Auckland market has fallen from 13,232 to 12,572 in May.

Within the composition of sales for the month of May the most striking fact is that whilst total sales at 1,109 was down 14% compared to a year ago the sales of property below $400,000 was down 50% - the total sales in May 2013 of property below $400,000 was 301 properties, a year later this segment had fallen by half to just 151.

Just to reinforce these numbers, excluding the below $400,000 segment which still represents 1 in 8 properties in Auckland the remainder of the property sales, those over $400,000 saw sales volumes slip just 3% down from 991 in May 2013 to 958 a year later. So almost all of the 14% fall in total sales is as a result of the collapse of the sub $400,000 segment.

It can be no coincidence that this segment of the market has been the hardest hit by the withdrawal of funding for high LVR mortgages which are primarily for 1st time buyers seeking an entry level property which in Auckland has traditionally been this sector. 

The LVR restrictions came into effect in October of last year and since that time sales in the 8 month period for property at this lower price bracket of less than $400,000 has totalled 1,541 property sales a year earlier it was 2,123, nearly 600 less purchases over that 8 month period, at a time when sales volumes overall barely changed. The chart below very clearly shows the impact of the LVR - performance before October certainly showed a weakening in the lower price segment of the market; however after implementation the impact has been striking with the red bars for the lower prices segments showing the decline in year on year sales volumes. The retardant of LVR restrictions has certainly quelled the fire of the property market which  was burning brightly this time last year.



We still know so little about overseas buyers of NZ property

by Alistair Helm in , ,


This week we have seen two supposedly insightful pieces of data helping to provide insight to the extent of international buyering of NZ property - one from Labour and the other from National. Irrespective of the validity of the data (I'll come to that in a minute) it clearly shows the fear and/or uncertainty surrounding the extent of international buyers' activity in the NZ property market. Certainly from a political perspective at least.

The first set of data released was from Treasury analysis of IRD data into tax returns filed by rental property owners. The data showed that from amongst 200,000 such tax returns around 12% (24,000) were from non-residents.

This data is certainly robust as there's somewhere around 400,000 privately held rental properties in NZ - allowing for multiple ownership this would cover most of the tax records. However the question has to be asked - what relevance has this data?

Included in this total of 24,000 would certainly be ex-pat kiwis with homes or investment properties here in NZ, and with the overseas ex-pat community somewhere close to a million people by all accounts, this group could account for all of it. Also the data provides no insight into the changes in the make up of this group of the years and thereby any inference of proportion of sales. The only trend analysis (Figure 1) shows that this segment had not actually grown significantly over the past 15 years during which time the NZ resident ownership base grew from 110,000 to 180,000 whilst the non-resident (as well as "unknown" whom the analysts suspect are likely to be non-resident) actually fell from around 28,000 to 24,000. 

The second set of data released by Labour's Housing Spokesman Phil Twyford presented the statement that based on data from a Chinese real estate website New Zealand is the 5th most popular place Chinese buyers look to purchase residential property behind the US, Australia, Canada and the UK.

The website to which the statement refers is SouFun - the biggest property website in the world, whilst not publishing traffic figures to its site, it is a listed company on the NYSE generating EBIDTA of US$360m on revenues of US$640m - this is a significant company operating in a massive real estate market. A market with annual transactions in the multi-millions of properties.

However whilst the audience and presence of the website is enormous in domestic Chinese terms, the capacity of it to attract an audience to NZ listings is tiny - no correct that microscopic.

In total they host probably somewhere over 4 million properties for sale across China together with a tiny add-on of around 35,000 listings from outside China. Within that 35,000 international listings there are 23 NZ listings - yes 23, check them out.

Many real estate websites around the world host international listings. The most significant of which is probably the UK site Rightmove which hosts over 125,000 international listings from more than 65 countries. Rightmove hosts 3,476 NZ listings which would equate to over 8% of all NZ property.

The fact is that the SouFun international section of the site is not representative of the true listing stock of any country it showcases. The closest it comes is actually Australia where it hosts over 6,000 listings - yet that represents less than 3% of the more than 230,000 listings of Australian property on the market today. For NZ there are 42,751 properties for sale at this time across the country and SouFun showcases 23 of them - less than one tenth of one percent.

It is therefore at best misleading and more likely totally irrelevant to showcase this data as any form of indication of true Chinese interest in acquiring NZ properties. 

Having said that there is no doubt we still need to find away to collect and analyse the data of property transactions - something I seem to be constantly championing - is anyone listening?


What can we glean from the April property market data?

by Alistair Helm in ,


The most noticeable component of the monthly summary from the Real Estate Institute for April was how conspicuously it lacked any great hyperbole. The facts were clear - sales volumes continue to fall and the fall was significant in the month, down 22% from March and down 20% year-on-year.

The fact is that sales volumes have been trending down since they peaked in October last year, reaching 80,677 on a moving annual basis. Since then they have fallen 4% to a moving annual total of 77,151 including April.

The April total of 5,670 sales was as the Institute stated the 7th lowest April since the data commenced over 23 years ago. I would go as far as to say that there were extenuating circumstances that partly accounted for the fall in sales. The Institute did reference the coinciding of school holidays and Easter and its effect on working days. I would judge that the key coincidence was the fact that the Easter week ended with Anzac day thereby creating two sequential long weekends and a very short 3 day business week which was a chance for people to escape in the last rays of summer as they did.

The last time this occurred was in 2003 when the impact on sales was equally significant - April 2003 saw a 1% fall year-on-year coming off a sequence of strong months in January / February / March of that year respectively +21% / +11% / +11%. By comparison 2014 saw January year-on-year sales down 4%, February down 8% and March down 10% before the April fall of 20%. Out of interest May 2003 saw a rebound with sales up 25% year-on-year. It could be that we may well see a rebound in May this year.

The fact is real estate agents are in many ways more influential in the marketing of property these days than a decade ago. Action was noticeably focused to getting listings onto the market in early March coupled with the avoidance of auctions and other time-bound campaigns ending around the Easter period. This did in some way help to deliver what was actually quite a strong March. 

In terms of price data the median price fell in April from a record high set in March of $440,000 to $432,250. The more reliable Stratified price edged a small increment higher from it's peak in March of $447,003 to $447,646.

As has been discussed recently there have been questions asked as to the true indication of property prices as represented by these two measures given the artificial inflation of median price as a consequence of the significant decline in sales of low value property. On a year-on-year basis the sub $400,000 price bracket saw sales decline by 32% - far in excess of the 20% decline in total sales in the month.

This factor is clearly impacting the true measure of property prices for just as the composition of sales is changing away from sub $400,000 properties, so it is skewing towards the $1m+ properties which grew by 14% year-on-year thereby exerting a larger influence on the median.

Gradually the impact of the this slow sales of lower price property will be reduced and the median price measure (either in raw form or stratified) will begin to reflect the true selling price of a representative selection of property sales. At that time and I believe the April figures are for the first time beginning to reflect this, we will likely see some easing in property prices, clearly showing that the market peaked in price and sales volumes back at the end of 2013. 


How can the median price be rising when property sale prices aren't rising?

by Alistair Helm in ,


This is not a conundrum, it is in my opinion the reality of the situation in today’s market and has lead to these fairly striking statement by some leading economists:

Westpac's Chief Economist Dominick Stephens said “It is impossible to tell what is really going on with house prices

New Zealand Institute of Economic Research (NZIER) principal economist Shamubeel Eaqub said “trying to forecast house prices has been a mug's game

The reason behind these statements is the conflicting data coming out from REINZ and from QV - specifically the March median price data which showed an accelerating rise in price from 8.2% year-on-year growth in February to 9.2% in March set against a fall in sales of 10% and QV reporting that the rate of price increase was easing. In a single month REINZ reported the median price of NZ property had risen from $415,000 to $440,000!

There has even been questions as to the accuracy of the REINZ data. This is not something I believe, or have any insight into, but such comments certainly demonstrate the concern in the market as so much value is attached to the timely and accurate indicators of the property market by so many sectors of the economy.

I have long advocated the use of the REINZ Stratified Median price index as a more accurate methodology for tracking the true indicator of the price of property sales across the country, however even this measure, long trusted for its lack of volatility has of late shown some wild fluctuations. 

Tracking these fluctuations over the past 20 years as the chart below highlights shows that on a 3 month moving average basis the recent decade has shown a normal fluctuation range of around $3,900 from month to month, this was a higher level of volatility when compared to the 90’s when the volatility was less than $1,700 month to month.

In the last 3 months this volatility has spiked with the 3 months average for the 2014 year so far showing a volatility month-to-month exceeding $11,000 - a highly volatile situation.

 

So why is it that we are seeing this volatility?

In my opinion the impact of the LVR restrictions are having a greater impact on the property market than is currently being acknowledged.

Let's look at the facts:

  • Sales of lower priced properties are down - the data is reported by both REINZ and in the Auckland market by Barfoot & Thompson. 
  • Overall property sales have already come off their peak and are easing - 10% down in the year to March.
  • The retail banks have demonstrated an ‘over-correction’ to the Reserve Bank imposed 10% criteria for high LVR lending, resulting in upwards of a 90% fall in the approval of 80+% LVR mortgages.

To better assist in understanding how these indicators might be contributing to the volatility in the median price I have developed a hypothetical scenario of the composition of the property market sales in a month. The by comparing this with a subsequent month where the underlying property prices remain the same year-on-year across all price sectors, where sales volumes remain unchanged across all price sectors, with the exception of the lower priced end of the market and let me show the impact.

Here is a hypothetical normal distribution of property sales in say March 2013 - 5,082 sales with a median price of $400,000 and for reference an average price of $507,000

Now let’s jump forward to March 2014 - let's reduce by 23% the sales volumes in the price ranges $225,000 to $400,000 - just these price ranges. All other sales volumes by price range remain identical to the year earlier.

The outcome of this impact (the hypothetical impact of the LVR restriction) is shown in the chart by the marginal sales reduction in red across those price ranges.

That 23% fall in sales across those lower priced properties segment leads to an overall 10% fall in total sales to 4,567. The median price though went up by 8% to $431,000 and the average price went up by just 4% to $528,000.

This model is designed to demonstrate that what we could be experiencing is two components of the property market working in complete isolation.

The majority of the property market is plodding on unaffected with the no change in year-on-year sales volumes, and not experiencing any price appreciation. Whilst in those sectors directly affected by the LVR restriction the sales volumes have dropped by 23% but equally with no price change amongst those sales. The net effect though is that the signal being sent out to the market through the median sales price is that property prices overall are rising in an inflationary manner.

A classic situation where aggregated statistics belies the true situation.  


Is there really a shortage of properties for sale?

by Alistair Helm in , ,


We have been seeing statements in the media for years now, stating how we have a shortage of properties for sale - ever since the property crash in 2008 in fact. However the question I constantly ask (myself as much as anyone) is, if this were a real issue then how come it could continue to be a real issue 6 years later?

I wonder if this issue is as much a function of available data as an intrinsic problem. Prior to 2008 there was no available data on inventory or new listings - the supply side data of the property market. Up until that time the only available data on the property market was transaction data on sales volumes and prices. Then in April 2009 Realestate.co.nz published the first NZ Property Report covering the market in March 2009 looking back 15 months to January 2007. This report provided a whole new set of data particularly centred around new listings and inventory as well as asking price.

The data set of the NZ Property Report covered the period from January 2007 as this was judged the most accurate starting point, due to the fact that the database for the website was truly reflective of the whole market from late 2006 - the inaugural year of the website.

The problem is that without data from say the nineties and early years of this century we have difficulty in accessing what a normal market was, as 2007 was the last of the froth of the property market before the crash and subsequently the market has moved into very different modes over the past 6 years.

I thought I would look at the core data and see what components are valid and what we may be able to shine a light on to see a clear picture of the market to be a true indicator of trends and to answer the question as to whether there is a shortage of property for sale.

 

1. Inventory data

The actual level of available property for sale on the market over the past 6 years has not changed that much.

Screenshot_11_04_14_7_26_am.jpg

It has been as high as 53,000 properties and as low as it is today at 39,000 properties - but then at 39,000 properties that is nearly half of the total current annual sales. Certainly buyer and real estate agents would love to see more properties on the market, but 6 months stock is a pretty good level and in relative terms the availability is pretty consistent.

Inventory on its own does not really help us understand the trends in the market

 

2. Sales and New Listings data

The supply side data of inventory and new listings, takes on a greater relevance when assessed against the rate of sales through the addition of the monthly sales data which provides a greater contextual insight.

This chart whilst a little confusing with dual axis tries to capture the key data sets and align them to provide insight. Inventory as per the previous chart is measured in actual monthly levels in the grey area at the base of the chart. The red and blue lines measure listings and sales respectively - both are reported on a moving annual total basis. This method of reporting removes the seasonality, so much a component of property data.

The take out from this chart is the almost flat level of new listings coming onto the market over the past 2 years - steady at around 130,000 per annum. Whilst at the same time sales have risen over the same period from an annualised total of 55,000 to 80,000. This shows clearly the component of demand in the market. That demand has not driven more listings to come onto the market despite all the communications from within the real estate industry and yet despite this, inventory has not actually fallen that drastically. This indicates more of a 'liquid market' where sales occur more quickly.

These charts which to me provide insight I know are to many confusing and I have been looking for ages for a simpler indicator of the overall sentiment of the market in regard to supply and demand - something that better answers the question as to the pace of the market and whether there is a shortage of supply. I will note here that I hold the view that price is a lagging indicator and as such tracking the market sentiment of supply and demand will provide the key to future trends in price.

I recently saw this chart from the UK property market showing actual inventory (green bars) matched to monthly sales (blue line).

It got me thinking that this measure had relevance tracking the effective rate of sales each month as a proportion of the available stock.

Producing this chart for the NZ market shows somewhat of a different chart. The seasonality of home sales in NZ seems far more pronounced than in the UK and therefore it is harder to determine easily a trend, whereas I would judge that there are key trends easily determined in the UK data - significant rising sales in the past months matched to falling inventory.

So how to present this data in a meaningful and simple way was the challenge, as I sensed the data contains the core insight needed. Especially at this time where I see the property market slowing and a lack of inventory is not the real issue or the driving factor. 

It came to me! - inventory and monthly sales - what we are really looking at is "Property Clearance Rate" - what percentage of the available stock of properties on the market in a month are sold in that month. A quick analysis produced this chart which shows the ratio of sales to inventory.

Again the seasonal volatility makes it hard to see a trend - the dotted line is a trend line overlaid, but as we all know applying a different fundamental equation to the trend line could produce a different picture! 

Then it came to me - take the 12 month moving average monthly sales and apply it as a percentage to the available inventory and I think we have what to me is a very relevant picture of the NZ Property Market.

Now I could be guilty of endlessly seeking data to fit a story, but in my mind this is a visual of the property market that to me makes sense. It uses the current rate of sale (adjusted to remove the seasonal fluctuations and short term movements), combined with the available stock which is itself the function of existing unsold inventory, new listings and sales.

The telling image from this chart is the sharp rise in the clearance rate once the property market got into gear around 2011 - that rise, from 9% to 19% speaks to the dynamic market we have seen over this past two and a half years. However what this chart graphically shows which I have sensed is that the market has turned. It turned even before we saw the LVR restriction introduced in October as this chart shows the turning point in August / September of last year and the latest data from REINZ on sales in March only reinforces this fact. 

So in my opinion given this declining clearance rate is the key trend and talk of a shortage of properties for sale is nothing but a red herring!

 

 

 


Mortgage rates on the up - what will be the reaction of the property market?

by Alistair Helm in , ,


Last week we witnessed the first increase in the OCR since July 2010 when the rate was then raised from 2.75% to 3.0% - that change was short-lived as in March of 2011 it was dropped to 2.5%; a level it has maintained since. 

The fact is that the current levels of interest rates, which have been pretty much stable for the past 5 years represent an unprecedented period of low interest rates. A quick look back in history shows exactly how the past 5 years contrasts with the volatility of the past 50 years.

Historically mortgage rates have experienced typical cycles of rises and falls, especially over the past 25 years, with rates topping 20%+ at the end of the 80's. To put that into perspective a 30 year mortgage for a median priced $415,000 property which today based on an 20% deposit costs $1,948 per month would cost $4,198 at 15% mortgage rates and a staggering $5,684 per month if we were to experience the 20.5% mortgage rate of June 1987 again!

We are certainly going to have to adjust our expectation as mortgage holders to paying more a month in the coming years as the trend is upward. The recent 0.25% increase added $53 to the monthly cost of a 30 year mortgage of the median priced house.

Of equal concern to most home owners with a mortgage is the likely impact these rises in mortgage rates will have on the property market, both in terms of levels of activity and price.

Whilst data from the Reserve Bank on interest and mortgage rates goes back 50 years the data on property sales and prices from the Real Estate Institute only goes back 20 years, however the past 20 years does provide us with some valuable data as to the property cycles of the period for analysis.

The chart above tracks floating mortgage rates since 1992 and as highlighted by the coloured sections, this timeline does showcase some parallel periods of rate changes which can provide a basis for analysis.

Rising interest rates - The red sections "A" - this occurred between March 1994 and September 1996, a period of 31 months.  A similar rising interest rate period was from October 2003 to July 2008, a period of 58 months.

Falling interest rates - Green section "B" - this occurred between April 1998 and August 1999, a period of 17 months.  A similar falling interest rate period was from August 2008 to July 2009, a period of 12 months. 

Volatile interest rates - Orange section "C" - this occurred between September 1999 and December 2001, a period of 28 months.  A similar period of volatile interest rates was from February 2002 to September 2003, a period of 20 months. 

So taking these three defined parallel periods of activity it is very interesting to see what happened to property sales volumes and prices during these times.

 

Rising interest rates

The two periods of rising interest rates were lengthy and progressive and both covered periods when economic activity was strong and with it the threat of inflation and that was the trigger for tighter monetary policy.

The impact of these rising interest rates spread over 3 to 5 years was to depress sales as the chart below shows. It is somewhat striking to see the degree of correlations between these two discrete periods. The period in the 90's did see some recovery towards the end of the period but the first 12 months was generally depressed. In the case of the 2000's the long term impact (heavily influenced by the GFC) was a significant depressing of sales volumes.

When it comes to property prices as measured by the median price the trend across these two discrete periods again shows a high degree of correlation. Both periods witnessed a decline in the growth of property prices. It was only towards the end of the 5 year period in the last decade that prices actually went into negative growth.

Falling interest rates

The two periods in which interest rates fell were short-lived, representing just 17 months in the end of the 90's and just 12 months in 2008/9. Both of these periods came about as a function of the necessary reaction of the Reserve Bank to external stimuli - in the late 90's it was the Asian Economic Crisis and a decade later the Global Financial Crisis.

The impact of these significant cuts in interest rates was to stimulate property sales as the chart below shows with again a striking correlation between the two discrete periods.

When it comes to property prices the fact is the data shows that the falling interest rates aided the stimulation in property prices. In the most recent period of 2008/9 dragging prices back from actually falling, whilst in the 1998 period it managed to stave off what could have been and was very close to falling prices.

 

Volatile interest rates

The past 20 years have witnessed two coinciding periods when interest rates showed significant volatility, in the space of 2 years interest rates rose and then fell to return to the prior period rates.

These instances occurred during the early years of the last decade and were triggered largely by global economic events. Clearly this degree of rising and falling rates can lead to uncertainty.

In the case of property sales, volatility in interest rates seems to establish no clear correlation between the two periods nor in fact any clear direction of the market. The earlier 1998/9 period saw sales fall and then recover, almost in line with the interest rate hike and then cut; as for 2002/3 sales fell but with some rebound.

As to property prices during this volatile period, again as with sales volumes the correlation between the two periods is not clear and the trend seems to show no significant movement up or down. The 2002/3 period did see a very marked rise after 12 months as interest rates fell; this was though the beginning of a very strong bull run on prices through to 2007.

So whilst by no means scientific, there is clear data to support the view that the occasions when interest rates are rising is a time when property sales ease and prices slow; whilst interest rate cuts stimulate property sales and inflate prices. However uncertainty in interest rates tends to leave the market marking time. With the Reserve Bank clearly signalling that we are about to experience a period of 2 to 3 years of interest rate rises it would seem to be fair to say we will see sales volumes ease and price growth slow.


Property price expectation weakens as property sales rise - why?

by Alistair Helm in ,


At times I have to confess I get a bit lost in analytics and data analysis, trawling through the reams of property data available - I love to seek out trends and then try and interpret the correlation. I have come across just such an interesting correlation and am curious to postulate some rationale behind the correlation and see what others think.

The correlation is that there is an inverse relationship between property sales volumes and the alignment of the asking price of property to the eventual sales price. That is to say that as sales volumes rise then the differential between asking price and selling price lessens, whereas when sales volumes fall the gap widens. Or put another way, sellers seem have a more realistic price expectation in a rising market! - not what I might have thought.

I was prompted to this correlation when examining the current trend of asking price to sales prices over the past 5 years. The source data I have looked at is the Stratified Price Index from the Real Estate Institute and the Asking price from the Realestate.co.nz NZ Property Report which uses a 80% Truncated mean price. I have chosen to examine the Auckland market specifically as it has witnessed sizeable movements in both volume sales and prices over the past 5 years.

Auckland property sale prices and asking prices.png

In the past year the asking price for Auckland properties coming onto the market has actually fallen below the sales price, or put another way the pace of sales prices has outstripped asking price. This was the beginning of the data trend analysis. I next added the data of property sales over the period and tracked this against the variance of sales price to asking price.

Auckland sales to sales price to asking price variance.png

The red line represents sales tracked on the left hand axis whilst the grey line tracked on the right hand axis shows the percentage variance of sales price to asking price with the parity level marked at the 0% horizontal line. A very clear correlation is seen albeit the monthly fluctuations make the chart a trifle messy.

Applying a 12 month moving average to the data sets though provides a clearer picture of the correlation.

Auckland MAT sales to asking price sales price analysis.png

So having established this correlation, the question is how can this best be explained? Here are some thoughts:

1. Property sales are a lead indicator of price movements and as can be seen there is a lag in the trend correlation of anywhere from 3 to 9 months. If asking prices are set based on current market demand and sales prices follow by a lag then the gap between asking price and sales price will narrow as sales consistently grow.

2. Asking prices are set more by agents than by vendors, as sales pick up agents are motivated to sell and therefore set more realistic expectations of asking prices especially at the early stage of sales growth. On the downside as sales fall agents hold out for a more optimistic selling price than the market would indicate.

3. In Auckland as we are so often told a majority of property is marketed without a published price and often for sale by auction. The asking price is created by the website search price which is not public. Therefore it could follow that as auctions become more popular (as sales growth takes off) the search price is set at the bottom end of price range expectation to attract attention which leads to this narrowing in the gap. Conversely the fall in sales drives less auctions and more realistic search range pricing.

4. The widening of the gap between asking price and selling price is possibly explained by the fact that expected asking prices still reflect an optimism by agents to see price continue to rise when the reversal of sales growth actually seeing property prices fall.

Whatever the explanation I think it is interesting to see just how close asking prices have come to the selling prices - the property sales have though started to tail off and therefore the acid test will be if the gap between asking price and sales price widens driven by continuing growth in asking price expectation.


Property sales - the end of the golden summer?

by Alistair Helm in


Courtesy Flickr - James Watkins

Courtesy Flickr - James Watkins

Residential property sales for 2013 totalled 80,119 as reported by the Real Estate Institute. This total is down by a third from the peak of sales in 2004 when 120,000 a year was a more typical level as highlighted in the chart below which tracks sales over this last 10 years as measured on a 12 month moving annual total. The 80,000 level whilst clearly no where near a return to those heady days, is though up 50% from the lowest point of the market in early 2009.

NZ sales to Dec 13.png

 

Sales have been in a steady and sustained recovery for a period of 30 months, the longest sustained growth period of the past 10 years, however that period of growth appears to be coming to an end as total sales appear to be plateauing at around 80,000. The past 2 months have seen the rate of growth turn negative as that plateau - real or imagined is reached.

Growth rate in property sales.png

 

Where to from here is the key question and why is it, that the level of sales has not returned to the pre-GFC levels of 100,000+?

The latter question is easier answered than the former. The banks and lending institutions are approaching residential property with a tighter control than they did in the mid 2000's, added to which property owners and prospective owners have come through the very real experience of property price falls, a phenomena that until recently was judged to be something that happened in other countries and to other people. A final consideration is that a significant portion of the sales in those early years of the first decade of the 21st century were a function of private investors keen to buy any property for rent based on the simple premise of banking the 'guaranteed' capital gain and writing off the 'paper loss' against tax. That approach to property investing especially by naive amateurs has been shown to be far riskier than was thought at that time.

So what of the future? - are we really at the end of the golden summer in terms of sales volumes? - has the Reserve Bank and its rules around LVR's finally had the desired effect of constraining the market? 

To better understand this requires a closer examination of the state of the market matching supply and demand across the country and in the major cities. The level of inventory as an indicator of available properties for sale as reported in the monthly Property Dashboard based on the Realestate.co.nz NZ Property Report is a good guide however seeing the trend over a 2 year period provides a clearer picture.

For this reason I have tracked the respective trends in sales volumes on a quarterly basis, year-on-year against the number of new listings over the past 2 years. The red bars reflect the trend in property sales, with the grey bars the trend in new listings.

NZ sales & listings.png

 

The picture for the whole of NZ shows the tailing off of property sales. A year ago sales were up 27% against the prior quarter of 2011 with listings up 4% - in the last quarter of 2103 sales were down 6% whilst listings were up 2% - this would indicate as the intermediary quarters show, the market is lessening its tight grip as a sellers' market and entering a more balanced period - a period that should allow buyers to breath a bit more easily and require sellers to be more pragmatic to buyer demand which in the past couple of years they have taken for granted.

Looking at Auckland specifically, the picture is somewhat similar to the national picture with this tailing off of sales whilst listings are shown to be growing albeit slowly thereby potentially allowing this heated market to cool significantly.

Akl sales & listings.png

The Wellington market equally is experiencing a tailing off of sales volumes, however what is most conspicuous is the consistent decline in new listings through the past year. For the past 4 quarters new listings have tracked below the level of the prior year and that decline accelerated in the final quarter to a 6% decline indicating that the market activity is declining and the market availability of new listings equally in decline.

Wellington sales & listings.png

The Canterbury market is the one major city / region that is not mirroring the national trend. The market here is as anticipated, continuing to see a recovery with growth in listings and sales albeit at modest levels.

Chc sales & listings.png

 

This article and analysis is focused on property sales, the number of transactions. It is not about property prices, however they are inextricably linked and tend to follow the same trends with volumes leading prices, if as we are seeing a lessening of demand through a plateauing of transacted sales then that is likely that we will witness a lessening of pricing pressure which should have the effect of cooling the market, not necessarily leading to price falls but at least taking the steam out of the market.