The property market in October certainly shows growing confidence (in Auckland at least)

The property market in October certainly shows growing confidence (in Auckland at least)

The Real Estate Institute released the October statistics to the headline of the "market roars into life" - well certainly it was a very active month with sales up 33% on the same month last year and property prices setting new records.

I think it is useful to see the property market as an industry employing as it does over 10,000 active sale agents and transacting over 72,000 properties in the past 12 months. The value of these annual level of transactions has grown in the space of 12 months by $7 billion; growing from $25.6bn in the 12 months to October 2011 to $32.6bn in the past 12 months.

For me the question remains - is this an Auckland phenomenon or is the "market roaring into life" across other parts of the country?

Just last month prompted by this question I examined the make up of the property market and the representation of Auckland within it and came up with the conclusion that the activity in the NZ property market is largely the Auckland factor. Applying the latest data for October to the same set of historical sales data confirms this continuing trend. 

In October Auckland represented 39.4% of all sales nationally, up from 39.2% in September and up from 36% a year ago. The chart below shows this trend with the red line representing the moving annual total percentage which is growing very strongly through 37% of all sales.

When viewed as sales tracking on a 12 month moving average basis the divergence between Auckland and the rest of NZ is very clear with the gap continuing to widen, although there was some pick up from outside of Auckland. 

As to the other major regions of Wellington and Canterbury, their respective performance is viewed in these charts below.

Wellington is showing some signs of growth, nothing of the order of Auckland and certainly fairly flat over the past 2 years.

Canterbury whilst showing some strong growth through 2011 has seen a plateauing in for the majority of 2012.

Auckland house prices did not leap by $33,000 in a month

The October sales report from Barfoot & Thompson had the media jumping around proclaiming that Auckland property prices had set a new record, exceeding for the first time $600,000 and rising over 5% in a month equivalent to over $33,000 gain in just 30 days.

Did nobody bother to read the whole report, or ask a simple question?

The key message in the report that should have been glaringly obvious was that Barfoot & Thompson had sold over 119 properties for in excess of $1million, the highest monthly total since before 2007.

That message should have set of alarm bells. It certainly got me thinking and doing some calculations. If the number of $1million+ properties sold was that high, up from just 78 in September, then it is quite possible that the average price could have been skewed.

Let’s look at the data. Barfoot & Thompson sold 1,081 properties in October with a total sales value of $668,822,370 giving an average price of $618,707. Of the total; 119 properties were sold with a price in excess of $1m. That is 11% of sales in the month, by far the highest proportion sold this year.

Now let's do a calculation to try and evaluate the movement in prices for the majority of properties sold by the company - below $1m. For this calculation I have made an educated guess to say the average price of property sales in excess of $1m+ is actually $1.35m. I have actually used some data I have around the distribution of listings at differing price ranges to give me a guide. By calculating the monthly total value of sales of properties over $1m I can then deduce the average price for the 90+% of the market that is below the $1m mark. 

Undertaking this calculation has enabled me to produce this chart below, which in the grey line shows the reported average sale price for all properties sold by month. This clearly shows the extreme skew in October. The red line on the other hand shows the average price per month for all property sold below $1m - the vast majority of properties.

Now to my mind that line would better reflect the true picture of Auckland property prices. Prices in October recovered from the slight fall in September to continue in an upward trend from $520,000 towards $527,000 in the past 6 months.

I think it is time Barfoot & Thompson reviewed their statistics reporting, choosing in favour of median price over average price.

The fact is statisticians and economists all favour the use of median price for the reporting of property sales – the Real Estate Institute favour median and also go so far as to use Stratified median price, in my opinion the most accurate representation of true property price movements. It is for these reasons that I judge the better view of Auckland property price movements should wait until the October stats are released by REINZ early next week.

Property market kicks into gear in October

The property market certainly responded to a long overdue call to restock inventory levels of properties for sale. For the past 18+ months the message has been clear – there is a seller’s market, which has been continually building, and despite the numerous media reports, home owners considering selling seemed to have been overly cautious about responding to this demand from buyers. In October though it seems the response has been heard and the action taken - let's list!

This assessment of the state of the market is provided via the excellent data released each month by Realestate.co.nz in their monthly NZ Property Report. The report is the first data of the month being released in the first few days after month end and provides insight into the supply side of the market – a unique set of data collated as a result of the website hosting close to 100% of all listings by licensed real estate agents.

The data in the report is comprehensive and the charts provide a great insight, as ever though I am keen to explore new methods of presenting the data and as the original author of the NZ Property Report I though I would analyse the data to see how additional representation of the data could help home shoppers better appreciate what is going on. The main perspective I was interested in was how each region of the country was performing as compared to the national trend and each other region. This process lead me to these three charts below which I think ably reflect this desire.

In terms of inventory the national perspective is that inventory levels remain low – they are 16% below the long term average which supports the view that we are experiencing a sellers market. However this is not reflected across all regions. There are 7 regions where inventory is above the long term average making these buyers markets, with Gisborne and Taranaki having considerable inventory based on the current rate of sale. At the other extreme it is very evident to what extent Auckland continues to witness very low inventory and maintain its market situation favouring sellers.

When it comes to new listings the strength across the country is very clear – nationally based on seasonally adjusted data new listings were up 4% in the month with the majority of regions seeing strong rises with only Marlborough being the outlier with a 20% fall in new listings.

In regard to property asking prices the seasonally adjusted asking price for new listings in October rose 4% in October and only 4 regions saw falls in asking price with a very strong surge in Central Otago / Queenstown lakes district as well as Canterbury.

Disclosure of interest in that I used to be CEO of Realestate.co.nz, although I no longer have any affiliation or financial interest in the business – just a passion to see it continue to provide open property data and deliver a great user experience to home shoppers.

Canterbury property market - latest insights and analysis

It’s not possible to write a summation of the Canterbury property market without reference to the significant impact of the earthquake of 2010 and 2011

Not surprisingly the impact of these events and especially the Feb 2011 quake have continued to have an ongoing impact on the market across the region but especially in Christchurch itself.

Property Sales

Seen from the perspective of property sales, the two immediately affected months of September 2010 and February 2011 (shown in the red bars in the chart below) saw a significant decline in sales. The following months also witnessed impacted reduction in sales. The best measure of this is shown by the thin red line which represents the share of national property sales as represented by Canterbury each month as measured by the right hand axis.

The share dropped massively by around five percentage points in each of those months, however what is interesting is to the extent that by August of last year sales in Canterbury were back to the normal level of representing around 13% of the national total.

What is quite interesting is the most recent 3 months when sales have fallen off and have begun to represent less than 12% of the national sales level. This could be a function of the strength of the Auckland market diluting the regional sales or it could be a function of lower activity as the sheer scale of the property market has been significantly adjusted by the after effects of the earthquake and net outbound migration.

Property prices

Turning to property prices, for this analysis I have used the REINZ Stratified median house priced data for just Christchurch city rather than for the whole of the Canterbury region.

The picture here is of strong property price growth over the past 12 months as prices have risen over 9% in this time. The current stratified price at $368,140 in September fell from the August level of $379,534, that level was a new peak in selling price taking the level to 4.7% above the peak of October 2007.

As can be seen from the chart the property market decline from late 2007 resulted in a 14.6% decline in prices in the 15 months from October 2007 to January 2011, from that point prices began to recover with no visible impact of the earthquake on property prices.

As I have done with other such reports I am interested to factor inflation impact into property prices. The chart below takes the past 5 years and adjust all property prices to the equivalent of todays $ value adjusted for inflation. The picture as ever changes the story somewhat.

Allowing for the impact of inflation property prices in Christchurch have not recovered from the peak of the market in 2007. Prices remain just under 10% below the October 2007 level adjusted for inflation. The overall fall in property prices was of the order of 18.5% decline, and it is only since April of last year that prices have begun to recover.

Taking the picture back to the past 20 years the property price appreciation in Christchurch can be seen in the chart below.

Prices rocketed from $204,308 in June 2002 to more than double that level (inflation adjusted) by the peak in October 2007 at $406,867.

Property supply / demand balance

The supply side and the demand side of the property market in Canterbury are key indicators to assessing the state of the market.

The supply side is best represented by the inventory of homes on the market, the October level of 22.8 weeks of equivalent sales as reported by Realestate.co.nz in the NZ Property Report shows a steady improvement of availability of property for sale based on the recent level of sales. This level though does continue to trend below the long term average of 31.1 weeks indicating that the property market continues to favour sellers.

The balance between new listings and sales is perfectly represented in the chart below which tracks the rate of increase / decline in sales and new listings based on a 3 month period (September data being the end of Q3 for 2012).

The recent quarter has seen, as commented early a significant slowing in the rate of sales growth at just 3% down from the 47% in Q2. At the same time listings fell by 7% both indicators of a slowing property market.

Summation

The property market in Canterbury in general has been experiencing turbulent times as has the general population and the economy over the past 2 years. There is a sense that the market is returning to a more stable level of activity, although it is clear that levels of activity are slowing. It could be hypothesised that the level of sales activity and consequential price rises over the past year were the direct result of the earthquake. People choosing or having to make decisions to move creating supply and demand factors; those factors may now be washed through the system leaving a quieter market which appears to be less impacted by the pressure from any shortage of listing. This easing of such pressure on the demand side may well result in prices leveling off from the recent rapid rises of the past 12 months.