House sale volumes lowest in February since at least 1992 (Update 1)

Recovery in the housing market remained soft in February with house sale volumes at their lowest since at least 1992, figures released by REINZ today show. The average number of days to sell a property rose to 46 days in February from 43 days in January and the median house price was unchanged at NZ$350,000. (Update 1 includes comments and implications from ASB Economist). There were 5,029 sales in February, up from 3,666 in January, but was down from 5,228 a year ago and was the lowest February sales total since the REINZ started publishing figures in 1992. The Residential Section Price Index fell 11.3% in February from January and was down 3.4% from a year ago, REINZ said. Real Estate Institute of New Zealand President Peter McDonald said agents reported an air of caution amongst buyers, most of whom were genuine home seekers as opposed to investors. "Recent Government discussions of potential tax changes have halted the number of inquiries from investors who usually buy at the lower end of the price range. Most interest at present is in the $400,000 to $600,000 bracket and no change in interest rates is keeping the genuine home buyers in the market," McDonald said. See the full REINZ news releases here:

Total residential dwelling sales recovered last month from their lowest level in nearly two decades, but the national median price has remained steady at $350,000 in figures released today by the Real Estate Institute of New Zealand (REINZ). Real Estate Institute of New Zealand President Peter McDonald says it is pleasing to see residential property sales turnover return to normal levels for a February at 5029. ‘We are seeing a good supply of listings and high levels of inquiry so we expect the market to remain reasonably balanced and maybe strengthen as we move into the autumn months.’ The total value of residential sales, including sections, in New Zealand in February was $2.14 billion, a significant increase on the January total of $1.53 billion. The February total of 5029 dwellings sold is also well up on the January figure of 3,666. The breakdown of the values of the properties was 134 for $1 million plus, 587 for $600,000 - $999,999, 1269 for $400,000 - $599,999 and 3039 under $400,000. While the February national median residential house price remained level with the January figure, it is still 6 percent up on the median price for February 2009. There has also been an increase in 10 out of 12 districts in February when compared to the same month last year. The largest gains were in Taranaki, up 9.61 percent to $285,900, followed by Auckland up 7.59 percent to $453,500. After topping the list of percentage increases in January, Otago was the only region to experience a drop in median prices, down 0.44 percent from $223,000 in February 2009 to $222,000 last month. The annual increase in median prices was zero in Northland and less than 2 percent in Waikato/BOP and Manawatu/Wanganui. Auckland residential sales, including sections, accounted for $874 million of total sales in February. Canterbury/Westland and Wellington were the next greatest value at $284m and $273m respectively. The national median for days to sell in February was 46, up three on the January figure, but still 16 fewer days than the corresponding period a year ago. Sales were quickest in Wellington and Southland at 32 median days. The REINZ Monthly Housing Price Index increased by 0.4 percent to 3214.8 in the February 2010 month. In the three months to February, housing prices decreased by 1.2 percent. Compared to 12 months earlier, the REINZ Housing Price Index increased by 5.5 percent. Housing prices are 4.9 percent below their November 2007 peak. In Wellington, housing prices in February were 8.2 percent above those in February 2009 with housing prices in Auckland (up 7.2 percent), Christchurch (up by 4.3 percent), other North Island suburbs (up 5.9 percent) and Other South Island suburbs (up by 2.5 percent) also up from the year earlier levels. The REINZ Monthly Residential Section Price Index decreased by 11.3 percent in the February month. Residential section prices are 3.4 percent lower than the same month last year. Further details on the REINZ Monthly Housing Price Index The REINZ Monthly Housing Price Index is put together using a technique known as stratification; basically it is an average of sale prices for common groups. The approach used to calculate the REINZ Housing Price Index is very similar to that outlined in the Reserve Bank of New Zealand discussion paper “Developing stratified housing price measures for New Zealand” (see www.rbnz.govt.nz). However, as a further improvement the REINZ housing price index is now calculated using sales for all transactions reported by REINZ members (rather than the median price for each suburb) within the stratum. The resultant measure will provide an even more accurate reading of housing price trends. How stratification works: • Dwelling sales from approximately 1800 New Zealand suburbs are ranked according to their median sales price over the relevant comparison period (currently January 2005 - June 2009). • The suburbs are allocated into ten different groups (or strata). Suburbs accounting for 10 percent of the lowest sales by price are grouped into stratum 1; suburbs with 10 percent of the most expensive sales price are in stratum 10. The allocation of suburbs to each stratum is fixed over the comparison period. • Using sales data for the individual transactions within the stratum, a median sales price is derived. • The median sales price for each stratum is averaged to produce a housing price measure from which the housing price index is derived. The REINZ Monthly Housing Price Index is based on a value of 1000 in January 1992, the first month for which electronic information is available. Changes in the index represent movements in housing prices, where the mix of sales between the groups is held constant and are more likely to reflect genuine property price movements. Monthly movements in the REINZ Housing Price Index can be volatile, particularly for periods or geographical areas where there are fewer transactions. To aid comparison it may be advisable to convert the monthly data to 3-monthly averages. The REINZ Monthly Housing Price Index is a new development and further improvements to the methodology and other refinements will be introduced periodically.

Comment February REINZ housing data confirmed the housing market is losing momentum. While house sales picked up slightly (+7% s.a.), the level of sales remains low. More telling was the rise in days to sell (39 seasonally adjusted, from 36 days previously). The steady climb in days to sell from October’s lows suggest the balance between supply and demand is returning to normal, following a period of under-supply through spring. The REINZ data is consistent with house listing data from realetate.co.nz earlier this month. House listings are starting to increase on a nationwide level, and the total stock of houses available for sale is steadily climbing. The lift in supply should reduce pressure in the market, and house prices are likely to ease over 2010 following surprisingly strong gains in 2009. REINZ new stratified house price index showed a 0.4% increase in house prices. However, seasonally adjusting this figure prices actually declined 1.1% during February. Implications The momentum in the housing market is now starting to fade, and the RBNZ has the probable change in tax policy to thank. During January, the Tax Working Group came out with strong recommendations that the Government needs to change the tax treatment of housing. The Government has left the door open to two potential options: removing the ability to claim depreciation (recommended by the TWG) or ring-fencing tax losses from property so they cannot be used to offset other sources of income. We expect house sales and prices will be weighed down by uncertainty over tax changes until the Budget at the end of May.