Gap between asking price and sales price narrows further

by Alistair Helm in


It is interesting to compare the expectation of property prices to that of actual sales prices, as in theory it provides a guide as to the state of the market. The closer aligned they are the more realistic are seller expectations, a situation more common in a rising property market. Conversely the more divergent, the more out-of-touch are the sellers’ expectations, usually as a consequence of a falling market.   

Today’s market is certainly not falling (well not at the moment) and presented below is the trending chart of asking prices and sales prices for the past 6 years covering this important period from just before the property crash, right up to date – May 2013.

NZ asking price to sales price gap May 2013.png

It is only in the past 6 months that the divergence between asking price and sales price when seen on a 6 month moving average basis has reduced to below 10%, a level it passed through in 2008 on the way down to a gap of 15%.

Across New Zealand the stratified median sales price for property rose again in May to $415,325. That places the median price of property across the country some 9% above the peak of the property market pre-global financial crisis back 6 years ago in Nov 2007. These figures are taken from the REINZ stratified house price index, in my opinion the most reliable indicator of house prices. However when viewed against the bottom of the market in January 2009 the market is up 23%.

 

REINZ NZ strat price May 2013.png

At the same time the asking price for NZ property has risen in May to a new record level of $454,795 based on the data collected by Realestate.co.nz in their NZ Property Report. This record high is up 7% from the peak of the market pre-global financial crisis back in January 2008. When measured against the bottom of the market in November 2008 the asking price expectation has risen a more modest 14% over the period.

 

NZ asking price May.png

Auckland Property Market

In the Auckland market the gap between asking price and sales price is much closer than across the whole of NZ. It is now back with sales price within 5% of the asking price on a 6 month moving average basis. A significant tightening as compared to the 15% gap back in early 2009.

 

Akl asking price to sales price gap May 2013.png

The stratified median sales price for property in Auckland rose again in May breaking through the ceiling of $600,000 for only the second time. That places the median price of Auckland property some 19% above the peak of the property market pre-global financial crisis back 6 years ago in July 2007. However what is somewhat more alarming is the fact that since the bottom of the property market in Auckland in November 2008 the stratified median sales price has risen by 39%. 

 

Akl strat price May 2013.png

At the same time the asking price for Auckland homes has risen to see in May a new record level of $631,656 based on the data collected by Realestate.co.nz in their NZ Property Report. This record high is up 16.5% from the peak of the market pre-global financial crisis back in January 2008. Since the low point in asking price of October 2008 the mean asking price has risen by 26% to the new high of $607,600.

Akl asking price at May 2013.png

As to the future, the analysis of the past shows that on the way down as we can see in 2008 the asking price lead the change to reverse the decline as vendors started to establish a base of asking price expectation which at the bottom of the market was met by demand and that began to fuel a rise in sales price. This time around we will need to watch for a turn in sales price as this will lead the asking price trend by at least 3 months.


Gap narrows between asking price and sale price in Auckland

by Alistair Helm in


iStock_000018103127XSmall.jpg

It would make logical sense to see a correlation between the asking price for property and the selling price.

One will lead the other. There is likely to be a lag between the trends and equally there is likely to be a difference, naturally asking price will be higher than sale price.

All seems logical and intuitive – that was what I thought, and that was my first reaction when I read the news article this morning regarding the monthly NZ Property Report from Realestate.co.nz. The article quoted Paul McKenzie as saying “there was no significant discrepancy between asking and sale prices. They're normally pretty close. There are months when there are slight differences in ups or downs, but you're talking small percentages."

That type of comment always makes me keen to dive right into the data to see what the facts actually show and what can be interpreted. What I found was interesting – nationally there is a consistent ratio between sales price and asking price, but in Auckland not. Auckland is currently seeing a fairly significant convergence with the gap narrowing to around 5%.

The data

Taking the national data from REINZ of stratified median sales price and the Realestate.co.nz truncated mean asking price for the past 5 years provides a picture of the correlation as shown below for the data for the whole of NZ.

This shows a pretty stable picture over most of the past 3 years whereby the sales price is around a level of 15% below the asking price. There is a slight rise over the past 6 months. (Note the chart shows the 6 months moving average as the solid red line).

Now there is an important point of interpretation here. The asking price used in this analysis is based on all new listing coming onto the market in the respective month. The asking price is either the advertised price or the mid point of a price range if no advertised price is shown as in the case of auctions, tenders and other pricing methods that do not display a price.

Now contrast the chart for NZ with the same chart for Auckland and we see a whole different picture. Overall the correlation between asking price and sales price is smaller and over the past 18 months the trend has been a significant narrowing of the gap to where it is now close to just 5%. It would appear that whereas across the whole country property sells for around 15% less than the asking price, in Auckland it is just 5% less.

Hypothesis

So what could explain this situation? – is it a function of the rising Auckland house prices? Could it be more cautious real estate agents not pricing property too far ahead of expectation in Auckland?

Or could it be a whole different answer, that for example agents around the rest of the country try and be more bullish and advertise property with asking prices at least 15% higher to see what potential there is in the market.

The fact is I don’t know as there is no further data to analyse, however I could be tempted to offer this one hypothesis to see what reaction it provokes.

Auckland has a much higher level of property marketed for auction than any other part of the country – somewhere around 25% of all new listings. Properties listed for sale by auction are not displayed with a price but with a range. Agents who want to attract as many buyers as possible, maybe pitch a property with a range that is below the current market price.

Certainly anecdotal comments in the media constantly seem to focus on buyers becoming frustrated that property they go and see (after checking out property online) ends up selling well above the expectation.

Maybe what we need is for property websites as the primary display medium for real estate to  display a clear price range for all property so as to bring more transparency into the process?