How long has that house been on the market?

As an active buyer searching for your next home; in what we are constantly being told is a very tight property market, with an acute shortage of property, you might be surprised to learn that across the country half of all the properties on the market today have been for sale for more than 3 months. In fact 1 in 4 of all properties for sale today have been on the market since before Christmas!

The fact is, as with everything these days we tend to focus on the new, the latest and the current. We tend to look no further than the first page online when it comes to search results and property searching. Step beyond the first 3 pages on Realestate.co.nz and you will discover another 1,923 pages (20 properties to a page) full of properties all fighting for your attention.

I was drawn to examine the make up of the stock of properties on the market when I saw quoted the other day the fact that in the UK 25% of homes on the market had been on the market before Easter. A fact I found amazing. It prompted me to examine the extent to which this was true in NZ. The fact is in NZ overall close to 40% of all properties were on the market before Easter. 

About 25% of homes on the market today were on the market before Easter.

— Henry Pryor (@HenryPryor) September 28, 2014

This classic long-tail is more acute outside of the main 3 cities of Auckland, Wellington and Christchurch. Across provincial NZ there are currently over 27,000 properties for sale of which less than 1 in 5 were added in the month of September, with 6 out of 10 being listed more than 3 months ago. So much for the belief that the typical “days to sell” measure as reported by REINZ in August was 38 days! 

The fact is that a lot of properties take a long while to sell and often are re-listed more than once by a different real estate agent. It is only the final selling agent that declares to REINZ the days-to-sell as to how long it took them to sell the property from the date of the listing agreement, not how long the average house takes to sell from first listing day to final unconditional contract.

Some markets though do exhibit a very different distribution of aged-property. At the other extreme Christchurch exhibits  a very different make up of property for sale on the market. In this much tighter market where less than a third of all properties have been on the market for more than 3 months and properties listed for more than a month only represent 58%, compared to 82% across provincial NZ.

Auckland as would be expected has a high proportion of newer listings, but in fact lags considerably behind Christchurch. Again despite the constant commentary about the shortage of listings, fully 1 in 8 of all properties on the market today have been for sale since Christmas, fully a third have been on the market for more than 3 months.

For Wellington its inventory of property for sale totalling 2,362 listings has 45% of all listings - a total of over 1,000 properties that have been on the market for more than 3 months and similar to Auckland 1 in 8 (over 300 properties) have been on the market since Christmas - as yet unable to find a buyer.

Auctions are once again dominating the Auckland market

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?

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

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.

Property Dashboard for September

I revised the format of the Property Dashboard a couple of months ago now and have received good feedback as to the interest people have in it, how they are using it, and how it could be further improved.

One change I have made for this report and for all future reports, a change which has been forced upon me is that I have ceased to use the data from the monthly Realestate.co.nz NZ Property Report. I had been relying on this report for inventory data. However this report has become less reliable over the past few months. It was originally a report which was published on the very first day of each month as the most up-to-date view of property market trends, sadly it no longer seems to hold the same priority in the company and its publication is often the last published report of the month. For this month, it appears to have been released to the media but no copy has been published online, nor data set of tables made available.

I find this disappointing to see such a valuable insight be ignored and wither. I fortunately have been collecting for the past few months a weekly set of inventory data which I will now use as a mean inventory for each month. In this way I can publish the Property Dashboard solely from the REINZ data and supplemented by data I collect myself.

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September Property Dashboard

So what can we see as emerging trends from this month's dashboard covering all of the 16 regions and cities across the country?

From a national perspective we see a market still constrained by a tight inventory of available property for sale matched to a healthy pace of sales and prices that whilst easing from higher still show an 8% year on year growth.

Here's a quick one-liner for all the regions, check out more details on each regions own dashboard.

Northland shows a stable market with just a slight concern over low inventory

Auckland is still a tight sellers' market, there is some easing but not much so buyers beware

Waikato is a very active market favouring sellers with still strong price inflation

Bay of Plenty is definitely a sellers market, its tough for buyers

Gisborne is a balanced market with some price pressure

Hawkes Bay is a well balanced market although there is pressure on inventory

Taranaki is a challenging market with high price growth despite ample inventory

Manawatu / Wanganui is a balanced market but is seeing prices falling

Wellington is a well balanced market enjoying a good pace of sales with little price pressure

Nelson is moving into a sellers' market as faster pace of sales meets low inventory

Marlborough is a well balanced market with the pace of sales picking up

Canterbury is a very strong sellers' market as it has been for a long period

West Coast is a very slow property market yet with a high price inflation

Central Otago is a sellers' market with very strong sales pace and tight inventory

Otago is a well balanced market with neither buyer nor seller advantage

Southland is a challenging market especially for sellers, buyer approach cautiously!

Follow the money in the real estate industry

As I have expounded before, when it comes to the real estate industry the subject of money is little discussed and little understood. I have sought to answer the often asked questions as to what are the real estate commissions charged by the large companies? what does a real estate agent earn? and also just how efficient is the real estate industry?

To add to this list I have for quite sometime been meaning to do an analysis to see exactly where that c.$18,000 of commission fees goes when the property transaction goes unconditional and the selling agent collects the deposit from the buyer from which they are entitled to deduct their fees.

In the calendar year 2013 the 80,119 property sales reported through the Real Estate Institute’s members generated a total sales value of $40 billion and a commission fee of $1.4 billion in residential real estate alone. The question I think should be asked and investigated as to the flow of this revenue stream as to who are the beneficiaries. I make the statement of beneficiaries not as a judgement in any way on any party to the real estate service, I merely believe it is insightful to see the flow of money.

Firstly the $1.4 billion in commission fees actually scales up to $1.6 billion when the GST is added, meaning that the average amount property sellers paid to real estate agents was just over $20,500.

As far as following the money the first beneficiary is the government - a tidy $200 million a year of GST on the transaction invoice comes right off the top the government. In fact when you add up the total tax take including GST plus notional PAYE and company tax I would conservatively say that the government coffers benefit to the tune of $400 million a year from the operation of the real estate industry. This total conveniently matches the total budget for the Ministry for Culture & Heritage with a 2013 budget of $398 million - seems somewhat fitting that the real estate industry effectively under-rights Arts & Music, Broadcasting & Films, Sport & Recreation and Heritage.  

This significant take by the government however only represents just under a quarter of every dollar that sellers pay to real estate companies, the balance - 76% or in total $1.2 billion is distributed as represented in the chart below.

The largest chunk - a total of $610 million representing $37 in every $100 paid by sellers goes to the people who provide the services to the sellers of property - the agents or more appropriately titled licensed salespeople. There are around 10,000 of them in residential sales. So the reality is that agents see only just over a third of the total money paid by the seller.

Somewhat surprisingly only $7 of every $100 that vendors pays in fees goes to the marketing of their property (or in fact marketing in general as this total of just over $100 million includes the real estate companies and agents own brand marketing) - given the desire by sellers to see the property sold which as a natural precursor requires a marketing campaign, it may comes as a surprise just how little of their money is spent on marketing.

A large portion, $27 in every $100 paid by property sellers goes to the business owners who run the real estate industry, not for those flash high street offices as this cost is separately accounted for as $5 in every $100; but to the structures and operations that support the individual real estate agents whilst they are out and about prospecting for business and negotiating the sale.

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Notes: These calculations are based on the starting point of the sales data from the Real Estate Institute, to this I have added published data from some individual real estate companies (Barfoot & Thompson and Ray White) together with market share analysis of the market to create a model of the sales value by company. I have then factored in the average commission split between salespeople and offices as well as commission rates recognising regional variances and factors for median price. Lastly I have estimated the franchise fees charged by the groups based on market intelligence I have acquired over the many years I have worked in the industry. I accept that there is a lot of estimation in these calculations but as an indication I believe them to be robust enough to publish.