They say a picture is worth a thousand words, so this month we have six of them, in the form of graphs, to help explain what is happening in the residential property market.
Unfortunately they paint a very messy picture.
The two sets of housing market data that attract the most attention are selling prices and sales volumes.
The recent trends for both of these sets are shown in the first two graphs below. The median selling price firmed up slightly in September, which was expected, while sales volumes declined slightly, which was not.
The Real Estate Institute of New Zealand's median price has risen for two consecutive months, from $755,000 in July to $781,000 in September.
This is being proclaimed by some as the start of general rise in prices, but the chart suggests all that's happening is prices are following their usual seasonal pattern, but at a slightly lower level than last year.
Overall, prices are following their usual seasonal trends, but remain within a fairly narrow band with slight signs of weakness.
The sales graph below is also telling.
Sales dipped in September, but only slightly, declining from 6015 in August to 5816 in September.
But if you look at the trend on the graph for the three months to September and compare it with the same period of last year, there are only minor monthly movements and little overall difference from one year to the other.
What we are looking at is a sales pattern that is remarkably flat.
Then there's new listings coming onto the market.
These usually start picking up at this time of year as vendors anticipate a seasonal increase in sales leading up to Christmas and this year is no different.
However there are a few more of them this year than last, with Realesttate.co.nz receiving 9276 new listings in September, up from 7812 in September last year, an increase of 18.7%.
So buyers might be biding their time, but the vendors are keen.
Vendor optimism is also showing up in the average asking prices on Realestate.co.nz (in graph below), which increased from $826,195 in August to $866,978 in September.
But that comes after the substantial declines that occurred from April to July, and asking prices have only bounced back up to where they were in September last year.
That suggests while vendors might be feeling more optimistic, they aren't getting carried away in their price expectations.
Then there's the total amount of residential stock on the market (se below).
This too is following the usual seasonal trends, but at much higher levels than previously.
There were more than 30,000 residential listings on Realestate.co.nz at the end of September, up 27% compared to the same time last year.
Put simply, stock levels are too high for the volume of sales being made, and if you don't know what that means for business, talk to a retailer.
It remains a buyer's market and they are taking their time making decisions.
Even though stock on the market is currently at high levels, it would be even higher were it not for the number of properties being withdrawn from sale and taken off the market each month. (See graph below).
Interest.co.nz estimates that since April, more than 3000 properties a month have been taken off the market.
There are many reasons why a property can be removed from sale. But the odds on favourite is the vendor had unrealistic price expectations. And after several weeks of open homes and getting all the feedback from the agent and potential buyers, and then having their property languishing on the market unloved and unwanted, perhaps for several months, they decided to take it off the market rather than face reality.
However although these properties are no longer for sale, it's likely that their owners are still wanting to sell, making them a latent source of supply.
If you think stock levels are high now, wait and see what happens if market conditions improve to the point where they are tempted back onto the market to have another crack at it.
Overall it remains a buyer's market for sure, but it is messy and lacks any clear direction.
Buyers are active and will commit to a purchase, and falling interest rates will help in that regard, but vendors still need to be realistic on price and in some instances that will mean biting a bullet.
Otherwise their property will just end up on the heap with the thousands of others withdrawn from sale each month.
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33 Comments
I'd be very careful using a 2021 RV as a benchmark for buying in Auckland. Those valuations were completed at the peak of the market and things have moved significantly downwards since then - from a median $1.3 million peak in Nov 2021 down to a $970,000 median today. That's a 25% drop in median value.
https://www.interest.co.nz/charts/real-estate/median-price-reinz
The Eastern suburbs might be an exception but when revaluations are done again at the end of this year (November, I believe), there is a big downside risk. I'd wait until those revaluations come out in the AKL market, unless you can secure a good discount on 2021 RV.
But of course, that only matters if you are borrowing a good chunk of the purchase price.
"But of course, that only matters if you are borrowing a good chunk of the purchase price."
FYI, for those who don't know and unable to see.
Even a cash buyer who paid $1,300,000 at the peak for an asset that now has a market value of $970,000 has lost 25% ($330,000).
A counterfactual, if the cash buyer had waited:
1) they could have put the $1,300,000 in a time deposit and earned interest. This could be invested in a time deposit to offset the cost of renting. The balance after 3 years would be $1,294,647 (as cost of renting offset the interest income received after tax)
2) and paid $970,000 by purchasing at today's price, they could have saved the $324,647 and put these savings on time deposit at a bank. Or earned 4.426% per annum for 10 years by buying a 10 year government bond which means that $324,647 would be worth $502,237 in 10 years time.
Look at the above maths for a cash buyer of this property.
1) Oct 2021: purchase price $13,000,000
2) Current valuation: $7,180,000
3) drop in market value: $5,820,000 (a 44.7% fall from their purchase price)
$5,820,000 savings invested in a 10 year government bond today earning 4.426% would be $8,974,482 in 10 years time.
That is the cost of that single decision to buy in October 2021.
Property value - 65 Marine Parade, Herne Bay - realestate.co.nz
Haha & I’m sure there are just as many unhealthy bottoms hidden away 🫣…yesterdays CPI only galvanised my thinking that you’ve got about 6-12 months left on that soapbox Gecko…the need for a quick fix is getting more desperate with each release…print/slash/remove…$$/rates/restrictions…again, it’s not a good idea but they know that giving ole trusty the can a boot will bring on a wealth effect that will get the economy (maybe only at a false surface level) pumping…& then it can be a “meh, worry about it in 7-10 years” problem…you should be preaching for folks to start googling the specs on jetskis, Rangers & spa pools 🤔😉😂
Wealth effect can't be achieved with the flick of a switch. It could take multiple years for the housing market to recover back to late-2021 peaks for households and speculators to feel wealthy enough to spend like no tomorrow once again.
Rate normalisation alone won't expedite house price increases to recent highs, since it was a combination of very generous fiscal and monetary stimuli applied in bursts that got us there during Covid.
Don't forget that rating agencies will also be watching us closely as we already sit on >6% current account deficit to GDP and another bout of wealth effect-induced economic growth could push us into deeper deficits.
Yip the yield curve is only just normalising now - it is possible central banks have pulled a rabbit from their collective hat and deliver markets a soft landing but I’m still quite sceptical. It’s possible the recession is just about to start - remember the US share markets are hitting all time highs, unemployment is ticking up and central banks are cutting rates. This is the same/similar playbook or conditions to the 2000 and 2008 peaks and subsequent recessions/market crashes that took a number of years to recover from. We many actually see things get worse for another 12-18 months, not better.
I hear ya…but you don’t think if they get desperate enough to do something stupid (I mean, I think something stupid is more likely than something smart)…& they slash rates & pump cheap money into the economy again, alongside eased restrictions (I think DTI’s don’t apply to new builds as it is?)…then it won’t put a massive sugar hit into the economy? And it won’t happen fairly quickly? Hair of the dog/tomorrow’s problem kind of reaction to a complete cluster f**k of monetary policy is on the cards…let’s hope I’m wrong…but the longer it drags out the more likely stupid enters the chat surely 🤷🏻♂️😂
You forgot this graph Median Multiples | interest.co.nz
It's showing that the median multiple is trending lower, which will be a combination of lower prices and rising wage inflation.
As far as your retailer analogy goes, there is a fair bit of house/section retailers trying to dump stock that cost a lot to produce, before the newer more affordable stock (due to fast track and other policies coming) comes on the market in coming years.
Anybody buying now on the expectation of capital gains like we had in the past should be aware that this may not happen.
Done:
https://fred.stlouisfed.org/series/QNZR628BIS
I see many properties now transacting near 2017/2018 values ....... the slipnslide is still in action!
Yip and in real terms , prices bounced around with little to no ‘real’ growth for the 100 years before 1990. Since then we’ve had housing appreciating at 7% with inflation at 2-3%! (this isn’t sustainable’forever’ because peoples wages and rents (ie general economic inflation) are the cash flows that justify house price inflation - so one can’t inflate forever at 7% while the other only at 2%. It’s possible we are starting to deflate the mother of all bubbles in inflation adjusted terms. It’s quite possible we have housing returns that are less than inflation for a few decades which see house prices return to more normal (historically accepted) price/income ratios.
Not a certainty because who knows what crazy things governments/central banks may do if we start on another leg downwards in nominal terms with house prices - the wealth effect in reverse could trigger a very deep recession ie far worse than what we’ve just had the past 24 months.
Anecdotal story
A property trader had their property listed for sale for 18 months. Then took it off the market.
Another previous report
https://www.oneroof.co.nz/news/ex-cabinet-minister-pulls-house-from-sal…
He knows.....
Years back, I was at a dinner and sat next to someone I didn't know. As one does I asked "And what do you do?" His reply "Oh. I'm a politician (NB: A State one, not Federal). But that's not my main job. That's being a property developer". The inference I got, even back then, was that his political career gave him an insight into what his other job should be doing.
"Luxon seems to be doing pretty well selling up his properties..."
For those who own multiple properties, each property is a small percentage of his net worth. These properties might represent less than 20-30% of his net worth, so more willing to sell than wait? Or he knows something that we don’t?
For most residential property owners, that single property might represent 90 - 400% (due to leverage) of their entire net worth. In this case, they may be willing to wait and hope for higher prices (assuming no time constraints). For these owners there may also be an anchoring effect in force.
A lot of the politician's have rentals.Its documented here. If more of them start selling then surely a closer look is due.
Or he knows something that we don’t?
He knows that owning seven houses makes him look out of touch. Well he does now. But he should have figured that out before he became the national party leader. Sell them all and put the money in an ETF. Then have a go at being Prime Minister.
Was it greed or is he just actually out of touch.
"The Real Estate Institute of New Zealand's median price has risen for two consecutive months, from $755,000 in July to $781,000 in September.
This is being proclaimed by some as the start of general rise in prices,"
Are those proclaimations made by those with their own vested financial self interests?
Owner occupier buyers: CAVEAT EMPTOR
"It remains a buyer's market, and they are taking their time making decisions."
I'll disagree slightly.
"It remains a sellers' market, and they are taking their time making decisions."
All that's holding many vendor's back is... price. And for those with historical portfolios of any size, then now might be as good a time as they might get to cash-in. All that's keeping selling back is the fond belief that 'property always goes up' and given time it will again. If this article tells us anything, it's that The Market isn't behaving as expected.
i.e: "Put simply, stock levels are too high for the volume of sales being made, and if you don't know what that means for business, talk to a retailer."
To the tune of money for nothing, cost that's what it really is..
I want my...
I want my...
I want my capital gain
Unless the banks start liquidating the hopelessly in debt I just can't see another big drop. Banks want to keep sucking on your financial lifeblood, and atre aware enough to keep the host from dying. Extensions of interest only, payment deferment, term extensions all keep this parasitic dynamic in play.
"when suggestions are made that FHB's do the same to build larger deposits, it's met with contempt from some here."
By those with undisclosed vested financial self interests?
Owner occupier buyers: CAVEAT EMPTOR
The purchase of a residential dwelling is likely to be the biggest purchase for most households, with the purchase price representing up to 1,000% (up to to 90% LVR) of the entire net worth and lifetime savings for first home buyers.
Yeah it is very interesting. We tend to focus on the properties that do sell, understandably. However the properties that don’t sell may also have a story to tell. I wouldn’t know how to describe the relationship statistically or if it could be done but it would be nice to know at what value those unsold properties would change hands between a willing seller and a willing buyer. Those figures might tell us how much the market has dropped in value.
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