Understanding the property market is not overly complicated but it can be confusing. There seems to be a constant barrage of data and varying interpretations of it using differing terminology and statistics. So, each month on REDnews I will make a snapshot of the market to help you better understand what’s happening.
July is typically one of the quietest months of the property year. However it may surprise you to learn that whilst listings tend to dry up over winter, sales do not decline as much. Listings typically show a 30% fall between the biggest month of the year (November) and July. Property sales though tend to be only down, on average, around 20% from the peak month for sales, March.
This July though, sales were particularly weak with just 5,893 across the country as recorded by licensed real estate agents in data published by the Real Estate Institute of New Zealand. This is the fifth lowest number of sales in July over the past 15 years, a clear sign of just how much the market has slowed over the past 12 months. This weakness in sales is attributable to the financial market conditions for mortgages with the double whammy of rising interest rates and tighter controls on low deposit mortgages.
This weaker sales activity is further impacted by the threshold that prices have reached particularly in Auckland which, based on multiples of earnings, is limiting buyer affordability.
Whilst Auckland continues to see property prices increase at a rate of 13% year-on-year, the rest of the country has only 8% year-on-year growth. The other significant driver of this national price increase continues to be Christchurch with 10% growth. Auckland is beginning to come off highs of 15% year-on-year growth whilst Christchurch has maintained its 10% growth for close to a year now.
Across the rest of New Zealand, the levels of price appreciation are somewhat more muted with just four regions recording year-on-year growth of over 5% - Northland, Waikato/Bay of Plenty, Taranaki and Nelson/Marlborough. The region suffering the most is Southland where prices are slipping backward as they have been doing for close to a year now with the July figures showing a 6.2% decline. The regional performance underlines that the headline figure of 8% for the whole country is misleading.
A key component of the property market often reported is the shortage of listings. Shortage is an emotional term conjuring up images of desperate buyers queuing up at real estate offices for the latest offerings. The truth is far from this image. Certainly as compared to four years ago, or even three years ago, there are fewer properties on the market. Back in July 2010 there were 52,000 properties for sale, a year later it had dropped to 45,000, and by 2012 it had dropped to 42,000.
However, it was really around this time in 2011/2012 that the property market really started to come back to life and that is why listing numbers fell, but comparing July this year to July last year shows the truth around listing inventory. A year ago there were 36,000 properties for sale and in the month a total of 6,777 properties sold. This year, the number of properties for sale has risen to 38,000 and sales have fallen to 5,893. Saying there is a shortage, therefore, is not the best way to describe the market.
So, what is the outlook for the next few months? I suspect that the eagerly anticipated spring boost to the market will be lacklustre at best this year. Prices are weakening and sales will happen but not without a higher degree of negotiation. The likely postponement of the next interest rate rise until 2015 could well see some brighter figures coming in the early months of the New Year. Until then the savvy buyers will be out-and-about I suspect, grabbing some bargains as sellers face a harsher reality that if they want to sell, they will have to negotiate with willing buyers.
The market has that sense of “if you don’t really want to sell, this is not the time to test the market.” Waiting and watching may be a better strategy. For buyers, the advice is be smart and look for the opportunities as there will be some good buying in the next six months.
Alistair Helm is a property commentator who regularly reports on and analyses the property market and the real estate industry. He is the founder of Properazzi a rich resource of insight and analysis on all things related to property and the digital transformation of the real estate industry.