Auckland house buyer frustration is not a supply problem – it’s all about growing demand

The Auckland property market is not suffering from a low level of listings. The property market in Auckland is experiencing a lack of selection of property to buy caused by high demand which is depleting inventory.

It may seem a pedantic point but I think it is important. The analogy would be for a warehouse where the shelves seem only half full. The delivery from suppliers has not changed much over the past year but with more people coming into the warehouse and buying – even buying the dented and dusty products there is less stock on the shelves.

Looking at the data from REINZ and Realestate.co.nz published monthly highlights exactly what is going on and thereby avoids alarmist or self-serving statements like “number of properties being listed for sale was still way down" as stated by Helen O’Sullivan of REINZ, and "It's quite a battle to find the house that you actually want to buy, because of the low number of listings," from ASB chief economist Nick Tuffley.

Real estate agents want to talk about low levels of new listings, as their business is to list properties. It is admittedly hard to quantify demand in the property market, as sales volume is a resultant outcome of satisfied demand, unsatisfied demand that is sure to be high in the Auckland market at this time is harder to quantify.

The facts as shown by the data of new listings from Realestate.co.nz shows that for January the number of new listings coming onto the market was no lower than the past 4 years of January’s – January is a low month.

Examining the seasonally adjusted numbers from Realestate.co.nz as the chart below shows provides a useful perspective – January represented a very average month at the seasonally adjusted level of 3,594 new listings – there were 23 months in the past 4 years with less listings and 25 months with more listings.

The core number to examine is inventory – the number of properties on the market. At the end of January this year there were 8,622, a year ago there were 11,162, in January 2011 there were 13,349 and in January 2010 a total of 13,396.

Property sales are up and property is selling faster. Very importantly there is less “redundant stock” on the market – property that at one time in the past 4 years might have been hard to sell is now selling; thereby reducing the available selection of property on the market.

This is best shown in the chart below which shows actual sales, listings and inventory of houses on the market over the past 4 years – that red line showing the extent of the decline inventory is the most telling.  As the sales over the past 3 years (as shown by the yellow average sales line) goes up so inventory falls.

Quarterly trend for supply and demand in the NZ property market

The core analysis of the property market as with any market is the balance between supply and demand. In the case of property this relates to sales and listings - the balance represented by sellers and buyers.

Each month the relevant data is published, in the case of sales by the Real Estate Institute and for listings by Realestate.co.nz.

In the past I have liked to aggregate these two sets of data to see the trend in these two indicators paired up. Analysed on a quarterly basis, the reports for the whole country as well as each region provide a valuable view of where the market is heading.

The last such report was published in July for the 2nd quarter of 2012. I have updated the data and provided below the charts for the final quarter of 2012 - the 3 months ending December.

Total NZ

The level of sales in the final quarter of 2012 increased again up 27% vs prior year whilst new listings were up only 4% indicating that the overall market in NZ rmains tight with a strong demand and limited supply.

Auckland

Sales in Auckland in the final quater of last year staged another leap with a 39% year on year growth, this is now the 8th straight quarter of consecutive growth. Whilst listings are showing a consistent 4 straight quarters of growth their rate of growth is far behind the growth in sales.

Wellington

Wellington saw a strong surge in sales in the final quarter up 25 on prior year, however as with so many regions the level of new listings failed to keep pace with this demand only rising 4% year on year.

Canterbury

Sales in the Canterbury region were up 11% in the final quarter of 2012 with new listings up just 2%, these rises are modest as compared to the earlier period in the year; however that period was off the very low base of the earthquake in the first quarter of 2011.

Northland

Sales in the Northland region enjoyed a strong surge in the final quarter of 2012 rising 37% year on year. The year overall has seen strong growth in sales volumes. However on the supply side listings wre down 4% in the quarter and show a steady decline in growth through the year indicating a tightening of supply.

Coromandel

The property market in the Coromandel lags behind the growth in other regions of the country with sales down 3% in the final quarter following a 20% growth in Q3. On the supply side the market has seen a resurgence of listings up 11% year on year in the final quarter.

Waikato

Sales grew by 27% in the final quarter of 2012 as compared to the prior year up from 13% in the third quarter. Listigs coming onto the market though rose only 7% indicating the tightening in the market.

Bay of Plenty

Sales surged in the final quarter of last year in the Bay of Plenty up 28% year on year, however listings are failing to respond fast enough to this surge with just a 3% rise in the quarter following a 9% fall in the prior quarter, adding to the tightening of supply in this region of the country.

Gisborne

The property market in Gisborne continues to experience a strong resurgence with sales up 40% year on year in the final quarter and new listings up 14% - somewhat behind sales but tracking in the right direction to support the new highly active market.

Central North Island

The property market in the Central North Island continues to contract with sales only up 6% in the final quarter tracking a declining trend of growth through the year. Listing equally have been seeing slower growth with the final quarter seeing a 15% decline year on year.

Hawkes Bay

Property sales in the Hawkes Bay saw a strong surge in the final quarter of last year up 32% year on year. Listings also rose 12% to demonstrate an active and well balanced market.

Taranaki

A very strong end to the year saw sales in the final 3 months of the year surge 30% in the Taranaki region a consistent growth witnessed over the whole year, however unlike other regions listings are coming onto the market in large numbers up 37% in the final 3 months of the year.

Manawatu / Wanganui

Sales across he Manawatu Wanganui region rose 8% in the final quarter of the year with listings up 13%. The past 3 quarters have seen a faster rise in new listings than sales and this is likely leading to a larger inventory of properties on the market - good news for buyers.

Wairarapa

Sales in the final 3 months of the year surged 38% in the Wairarapa to see a continuation of what has been a very strong year for sales in the region. At the same time the level of new listings whilst not showing the same levels of growth is adding to the available pool of properties on the market.

Nelson

The property market in the Nelson region is continuing to show no growth. The final quarter of the year saw sales up just 2% whilst new listings fell by 3%, this trend has been seen over the past 3 quarters of 2012.

Marlborough

Property sales in Marlborough surged in the final quarter of the year up 50% on the same period in 2011. The year overall has seen strong growth in sales and strong levels of new listings providing a perfect environment for property sales.

West Coast

The property market on the West Coast is suffering significantly over the second half of the year having seen a strong start to 2012. The sales in the final quater were down 5)% with listings down 8%.

Central Otago / Queenstown Lakes

In the Queenstown Lakes region including Central Otago the final quarter of 2012 saw a surprising and a significant surge in sales up 39% as compared to prior year - this following some tailing off of sales growth through the earlier part of the year. Listings which had fallen significantly earlier in the year are on the increase but there looks to be a tightness in the market.

Otago

Sales in Otago surged in the final quater up 19% with new listings up 12% which is identical to the increase in Q3 this would seem to indicate that the market is active and well supplied with property for sale.

Southland

Sales in Southland grew 12% year on year in the final quarter of 2012 with new listings growing ahead of this by 21%, this follows an 11% growth in new listings matched to a 2% rise in sales in Q3. This would indicate the market is active with demand but buyers have plenty of choice.

Auckland house prices - making sense of the data

If there is one certainty with property prices is that there is always uncertainty! - That is never more true than with the Auckland property market and its property prices.

The headline from earlier this week speaks of property prices falling in Auckland as the market cools in January; yet a few days later another report seemed to scare us with the view that Auckland is within the world's top 20 priciest cities!

What can we make of the mix of data and where is the market going?

My view is you have to be focused on core data and avoid being hijacked by random erroneous data, reports and surveys. The good news is that we in NZ do have good property data, it is well structured, easily accessible and is right up-to-date.

The most reliable indicator of property prices in Auckland is the REINZ Stratified median price index. Published monthly it uses the most recent month's sales data and makes adjustments to ensure that for example higher sales in high priced suburbs, matched to other extremes such as low sales in low price suburbs does not skew the median price. The method is professionally administered by The Reserve Bank and used as a trusted pricing method for property reporting worldwide.

The latest data including January for Auckland shows that the last 2 months has seen property prices ease. From the peak of $578,150 in November the stratified median price has slipped to $548,750.

As the chart above shows this is now 13.3% above the peak of prices seen before the GFC in 2007.

However as a cautionary reminder if you adjust for inflation as the chart below shows Auckland prices have barely made any gain in the past 5+ years. In November we came within 1% of the CPI adjusted peak price from July 2007 but the past 2 months has seen this fall to 5.3% below that peak. So based on this you would have to assess that property in Auckland barely keeping pace with inflation over half a decade.

Other sources of property price information

There are other sources of property price information available for Auckland, the most recognised one is the Barfoot & Thompson data. Now B&T are the largest real estate agencies group in Auckland and currently represent around 40% of all sales in the region which makes them a key indicator of the market. However they do not represent the whole market, 6 out of 10 properties sold in Auckland are not sold by B&T. Additionally their property data which is released within the first few days of the month and therefore gains early media attention is very raw data, however a major weakness of their data is that their property prices are just based on average price, rather than median or stratified median which leaves the data open to fluctuations, especially with high priced property sales.

Whilst the average price of sales by Barfoot & Thompson may be out of line with the REINZ Stratified median price for Auckland property as the first chart below shows, the trend of price movements as the second chart shows is more consistent.

I would therefore as ever be cautious in reading media reports and look to the REINZ Stratified median price as the best guide for what is happening to property prices in our major city. Certainly read the indicator trends of the B&T data when it is released but be wary of that average price which they now shows to be sitting atop $600,000

Close to 1 in every 5 properties do not have an accurate address!

This is a simple fact - yet it would seem unbelievable to discover that there are over 8,000 properties for sale today in NZ for which the agent listing the property does not provide an address.

Here are the numbers.

There are 62,852 properties (including sections) on the market today as detailed by Realestate.co.nz all of which are being marketed by licensed real estate agents. On the mobile app the total of properties with an address only amounts to 47,521 - that is only 75% with an address!

Now I concede that when it comes to sections mapping an address is a problem so let's be fair and exclude sections. Removing the 18,105 sections results in a total of 44,747 physical properties on the market with only 36,698 of them being presented on the app with an accurate address - that is 82%.

It seems unbelievable to find that in today's world when so much property searching is done on mobile devices that an agent who is not accurately presenting this data to the portals of Trade Me and Realestate.co.nz is not doing their job in providing a professional service to their clients. The fact is without an accurate address means that their client's properties will not be discovered by active buyers using these apps.