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)


Housing Crisis / Property Bubble - what does the data tell us?

by Alistair Helm in


The term "Housing Crisis" has been the standard text of many news articles in the past week - a quick Google search reveals the extent of the coverage and the political mud-slinging. Now, whether or not there really is a crisis regarding the availability of houses or if we are seeing a bubble in property prices is always a matter best explained and rationalised after the event, never during it. This leads me to ponder the old adage of "What can we learn from examining history?" and equally the wise comment "Past history is not a certain predictor of future trends".

However despite these cautionary words it is useful to examine the history of property data, in the context of which,  history covers in relative terms a fairly short period; for accurate factual data of property selling prices goes only back to 1992. Since that time we have had a monthly median sales price reported by the Real Estate Institute; that's 22 years of data which does at least cover a couple of key cycles, most significant of which in price terms was the period from 2000 to 2009. During this period of 9 years we saw the national median price (measured on the Stratified House Price Index) to more than double from $174,850 to $344,566.

The key questions is whether the current bull market witnessed since 2009 is in anyway a repeat of history? Certainly that slope looks very similar and can be seen to some extent to be accelerating over the past year.

To attempt to answer this question, I have compared on an index basis these two periods and overlaid them on the same chart. For the national picture the chart below tracks these two periods with the 2000 - 2009 period represented by the grey line and the recent 2009 to date represented by the red line.

Into the 5th year of this bull run the national median sales price is up 21%, this compares with a rise of 52% over the earlier property bull run at the start of the last decade. A case of the circumstances looking similar but actually the extent of the rise being nothing like as significant.

However when I thought more about this analysis a question struck me, which is as to whether indexing is appropriate a measure after all a 10% increase on $200,000 is $20,000 whereas a 10% increase on $400,000 is $40,000 and I know which capital appreciation I would prefer to have. So to answer the question, the capital appreciation over the early part of the last decade representing that 52% increase was $91,250 and the most recent rise of 21% represents an appreciation of $77,821. The chart below more ably demonstrates this.

So there appears to be a lot of similarity in capital gain between the current bull run and the last bull run - half way through the cycle if history were to be repeated, it would seem.

However this is where the rich data available can provide a very different view as to forecasting the coming years as to whether future capital appreciation will match the past decade. For although the national picture shows a striking similarity in capital appreciation thus far the components of the key regional markets highlights a very mixed story.

The REINZ Stratified House Price Index only covers the main 3 metro areas and then provides a figure for the North Island (minus Auckland and Wellington) as well as the South Island (minus Christchurch). Here below are these respective analyses of capital appreciation for the period of 2000 to 2009 and 2009 to date across these metro and provincial areas.

 

Auckland

Auckland we all know is cited as the driver of the current NZ property bull market, but would you have imagined for a moment that it is outstripping the performance of the last bull run? In just over 4 years the capital appreciation of the median sales price is $198,355; after the same period at the start of the last decade it was $132,810. There was certainly a hesitant start but that capital appreciation has been rolling along at a fair clip for the past 2 years - those two lines are certainly diverging more and more.


Wellington

It probably come as no surprise to hear that the capital appreciation for the Wellington market is less than Auckland, however the extent to how much lower may surprise. After just over 4 years the capital appreciation of the median sales price in Wellington is $28,582; after the same period at the start of the last decade it was $84,035. You could, looking at the chart even question the security of that accumulated capital appreciation - just 4 months ago to amounted to $65!


Christchurch

The Christchurch market, very much as a result of its own set of unique circumstances has been cited as the partner to the Auckland market in driving the bull run of house sale prices nationally. Well the data certainly bears that out, not quite as extreme as the Auckland market but keeping very much inline with the last bull run. After just over 4 years the capital appreciation of the median sales price in Christchurch is $107,982; after the same period at the start of the last decade it was $92,185.


Other North Island

This set of data comprises what remains of the North Island excluding Wellington and Auckland which is a large part of the North Island property market. It does cover the Waikato region including Hamilton as well as Tauranga, the Hawkes Bay, Taranaki, Northland and Manawatu / Wanganui, a very diverse range of property markets. It will though come as no great surprise to see that these collective markets being more of provincial New Zealand, have not experienced a bull market for the past four and a half years. Over this period the capital appreciation of the median sales price across these provincial North Island centers is $16,820; after the same period at the start of the last decade it was $67,225. There is certainly a lot of similarity between the Wellington market and the rest of the North Island excluding Auckland, further reinforcing the fact that this bull run is very centric to the two major cities.


Other South Island

Excluding Christchurch from the South Island still leaves a reasonable property market with Otago as well as the Nelson / Marlbourgh region, the balance of the vast Canterbury region and of course Central Otago comprising that unique market of Queenstown. This aggregation of provincial South Island has benefited somewhat better in the past four and a half years than their North Island counterparts recording a capital appreciation of the median sales price of $37,426; after the same period at the start of the last decade it was $92,550. Clearly this region enjoyed a strong bull market in the past bull run, this time however the markets seem more subdued.

 


Auckland house prices continue their relentless rise

by Alistair Helm in


In the space of just 5 years the Auckland property market has risen by 52%. Back in November 2008 the Stratified median price in Auckland as measured by the Real Estate Institute was $435,700. The November sales data for 2013 shows that median price is now $664,100. Five years, a total increase of $228,400, that's more than the average annual earnings in Auckland over that period!

 

Auckland Stratified Nov 13.png

As ever peaks and troughs in property markets are only ever able to be judged in hindsight, but buying a property in November 2008 now seems like a smart move, although at the time there would be many calling it a risky move given the trend of declining prices at the time.

Future Trends

The question often asked in relation to the prediction of property prices is how best to judge future prices based on past trends. This is, as often stated, not an exact science. However with over 30 years of data from the Real Estate Institute it is certainly worth exploring.

For comparisons to be made from one time period to the next requires a degree of normalising; which when it comes to prices, whether that be for property or households goods means adjusting for the impact of inflation. The general rise in prices as a function of inflation is far different from specific price rises caused by pressure of supply or demand, as is often the case with property.

Using the Reserve Bank Inflation Calculator and applying it to the monthly data of Auckland Stratified Property Prices produces this chart below which shows a somewhat different picture as to price movement for the past 6 years.

Auckland CPI adjusted recent years.png

 

The rise of 52% in today's dollars equates to a 37.8% increase when adjusted for inflation - still a significant rise over 5 years, however as can be seen almost all of that rise occurred in the past 2 years, as before that property prices adjusted for inflation hardly rose at all.

This steep rise of the past 2 years is pretty significant. From the starting point of October 2011 - 26 months ago the CPI adjusted Auckland median house price has risen by over 29%!

I thought it would be interesting to compare this rate of increase with the last time we experienced a very active period of house price growth back in 2002. That point was the start of what became a relentless rise which over a 5 year period saw property prices rise close to 70% in real terms, only ending with the start of the Global Financial Crisis.

 

Auckland CPI adjusted since 92.png

Taking just the comparable 26 month periods which commenced these periods of steep growth the period of December 2001 to Jan 2004 was a 27.2% rise. So by this measure we are current witnessing a faster rate of property price appreciation than the period cited by many as a period of rampant property inflation that we would never see the likes of again!

The question then has to be asked as to the likelihood of the property price appreciation continuing for another 3 years from now based on the parallel of the past 26 months of the 2001 run in property prices?

As ever that is a very hard call to make. The factors driving the rise in 2003/4 were very strong global economic activity backed by a strategy of targeted low interest rates as the US Federal Reserve sought to ensure the US economy staved off the recession and impacts of 9/11. Technology was driving prices lower and the powerhouse growth of China and the rest of  BRIC countries.

That was 2003/4, as to 2012/13 the world is emerging, still slowly from the GFC, the US economy and the British economy are picking up steam and the forecast for the NZ economy is for very strong growth, some say growth not seen since the 1970's. Add to this the migration expectations as they are likely to be felt more strongly in Auckland and then overlay the ever present issues about new construction of residential property and you have the seeds of strong factors for continuing property demand. Finally the cost of finance is targeted to rise, certainly a dampener on property prices, but when and by how much is debatable. In relative terms a 1% or 2% increase in mortgage rates will be significant when the current rate of 6%, but finance for property at 7.5% or 8% is in the long term still considered manageable.

In the short term the trend of property prices will likely be a slowing of growth. That is to say that when property prices take off as they have over the past 2 years the rate of growth has to slow as rises of 15% or put to 20% are unsustainable -  a 10% or below rate of annual growth is more likely - still seeing prices rise.

The chart below tracks the first 36 months of the property rises from December 2001 as measured as year on year growth and then tracks the 26 months of the 2011 to date run. An similarity of price growth trend - but very likely to tail off in the next 12 months. 

 

Auckland monthly growth comparison Nov 13.png

 

 


House prices ease in July

by Alistair Helm in


In my opinion the most accurate measure of house prices in NZ is the Stratified House Price Index published monthly by the Real Estate Institute. The index was developed in 2009 in cooperation with the Reserve Bank to provide a measure of real price movement by removing the influence of individual regions, districts or suburbs skewing the data by excess demand as could be occurring in today's market influenced by the Auckland market.

The July figures released this week saw a noticeable easing of price across the National picture as well as in Auckland and the other key cities. Whilst not as yet a trend, there is a sense of the market beginning to push its natural limit especially as we are in Winter. Another component of this sense of easing in the pace of growth in house price inflation was the increase in inventory reported earlier this month pushing more regions into a balance market and out of a sellers' market. 

Below are the charts for Stratified price index for the 3 cities and the national picture comparing the current price to the past 6 years covering the prior peak of the market and crash in property prices in 2008. 

 

Microsoft Excel-2.png

Auckland Stratified Jul 13.png

Wellington Stratified Jul 13.png

Christchurch Stratified Jul 13.png

Where are NZ house prices? – hitting new highs?

by Alistair Helm in


graphs iStock_000015752104Small.jpg.png

I thought it was about time to examine the latest house price data from REINZ. My favoured set of data is the Stratified house price index which as I have stated before is a more accurate reflection of true house prices across the country than the pure median.

The latest figure for March showed that house prices in NZ hit a new high of $409,080. This is the first time this measure has broken through the $400,00 level and represents an 8.6% rise over the past 12 months.

Interestingly the rise in the past year represents only just more than the rise since the peak of the market, now over 5 years ago in November 2007. Price today are just 7.4% ahead than that peak. As the chart shows the market fell by 11.4% over the first 14 months to a low of $337,400 before initially rebounding in 2009 and then slipping sideways through 2010 and starting to recover in early 2011 before starting the ascendancy to climb through the prior peak which was passed in May 2012.

The rate of increase in appreciation of property prices as shows in the chart above has been growing significantly over this last 18 months edging ever closer to 10% on an annualized basis. No signs yet, of the heady days of 2002/2003!

However when assessing the appreciation of any asset over time it is an oversight not to factor in the impact of inflation. A basket of goods valued at $100 in 2007 at the very peak of property prices would now cost $114.54. Sure the recent years have seen low relative inflation, but the compound impact of inflation cannot be ignored.

Property prices adjusted for inflation shows a very different story for the past 6 years as the chart above details. In today’s $ terms the peak of the market price in September 2007 actually equates in todays $ terms to $436,508. That compares to today’s price of $409,080 – so in fact we have not as yet broken the peak of the property market pricing. We have not hit a new high. Property prices are still 6.3% below the peak.