In May the Government and the Reserve Bank announced significant changes designed to slow the rate of growth of Auckland property prices.
While I may take issue with some aspects of these initiatives, in principle I support moves to slow down the rate at which house prices in Auckland are increasing. It is in everyone’s interest, including those of us who work in the real estate profession, for the market to be stable, and rampant increases have the potential to undermine stability.
In the lead up to the twin announcements, a statement which regularly appeared in a variety of media caught my attention.
It was to the effect that in April, Auckland house prices had risen 18% on those since April last year. The impression being that that in April house price increases went through the roof.
This surprised me, as based on our records, the movement in prices over the 12 months was around 11%, and at the same time Quotable Value (QV) was talking about the increase being 14.6%.
It led me to delve a little deeper into where that 18% figure came from.
The most likely source was from Real Estate Institute of New Zealand (REINZ) statistics, which did show that year-on-year, the increase in the median price was 17.8%. Technically, the number is correct.
However, for me it is one of those statistics which gives a false impression as to what is really happening.
When you look deeper into the REINZ statistics you see that in March the median house price was $720,000, and the rate of increase over March the previous year was 13%. In April, the median price remained exactly the same ($720,000). While there had been no increase in the median price at all, the rate of increase had risen from 13% to 18%.
The explanation for this statistical ‘oddity’ is simple. In April 2014 the market experienced a significant one-month dip, and the comparison is off an artificially low base.
What it points out is the need to be cautious about reading statistical data in total isolation from context.
I always try to interpret trends over a reasonable period of time, such as 3-months.
The 2 most authoritative bodies that report house price data are QV and REINZ.
QV is a State Owned Enterprise, and the Reserve Bank and Treasury base their interpretation of what is happening to prices on its data.
QV takes its data on actual sales prices as reported to it by local authorities, and for that reason its data can be 4 to 6 weeks behind ‘real time’ information. It also deducts 5% off the sales price to cover chattels. Its unit of measure is the average price.
REINZ favours the median price, and makes what economists and statisticians refer to as ‘seasonal adjustments’. Its data is based on the sales figures of all members of the Institute, it incorporates chattels in the sales price, and publishes its numbers within 10 days of the end of the month – so its data is more up to date than QVs.
In April, QV was reporting the average Auckland sales price as $809,200, an increase of 1.5% on March’s average price.
For April, REINZ’s median price was $720,000, the same price as in March.
The data Barfoot & Thompson releases each month is based on our actual sales for the month, and we release both an average and median price. Our figures represent between 35% and 42% of all the sales made in Auckland, which makes them in a statistical sense a good representation of what is happening across the market.
In April our average sales price was $804,000, an increase of 3.5% on that for March, and our median price was $753,500, an increase of 6% over March.
Based on data covering the last 3 months (February to April) compared to the same 3 months of 2014, the average sales price has increased by 10% in a year, and the median sales price by 14%.
Significant increases, but nowhere near as intimidating as 18%.
Westpac has handy tips, info and mortgage calculators to help: