Article: Property Investment
Facts Figures & Fortune Telling with Frank Newman
The latest sales information published by the NZ Real Estate Institute has reasonably encouraging facts and figures for property investors.
Sale volumes and prices are up nationally on the same time last year, and more commentators are coming to the view that the market is showing early signs of recovery. The story is not as encouraging in Northland, although the provinces do tend to lag the major centres so it may be signs of better things to come.
National Sales And Prices
Across the whole country monthly property sales have been up on the previous year since May 2011 and improving since the trough in October 2010 when volumes were down some 35% on the previous year. (See graph.)
Property Sales Nationwide – Monthly Percentage Change
This may be an early signal that the better days are ahead, but how far ahead is the question. Although volumes are improving at a reasonable clip, property prices have yet to follow suit.
The median house price in December 2011 was $355,000 compared with $352,000 a year earlier, a gain less than the rate of inflation.
Interestingly, comparing the percentage change in volumes against the percentage change in property prices shows virtually no relationship (correlation) between the two. In other words, although the property market is more active it is not affecting price. This could be because the market is saturated with listings: there are plenty of sellers so buyers are in a strong position to negotiate price.
Of the main centres, Auckland was (again) the standout performer. The median house price was up 6.5% on the same time last year and volume increased by 27%. Christchurch prices rose 4.7%, and volumes were up 14%. Wellington went against the trend, with the median price down 3.3% and sales down 1.5%, quite possibly due to employment cuts in the state sector (and more likely).
Northland Sales And Prices
It’s a similar story for Northland as far as activity is concerned, but unfortunately less positive when it comes to the median sale price. December sale volumes were about 20% up on the same time last year, which followed a strong November. But the median house price has dropped every month since July 2011 and is now at $289,000 compared with $296,000 in December 2010.
As is the case nationally, the increase in the number of properties sold has had no impact whatsoever on property prices. I am not surprised by this as Northland did outpace the national averages during the boom times. It is therefore only reasonable to expect the “correction” to be longer and deeper.
If I were to get off the fence and polish off the crystal ball my fortune-telling prediction would be that we are at the tail end of the “longer and deeper” part of the correction and property prices will bounce around at these levels for a year or so before setting off on a slow path onward and upward.
The added complication for Northland is the huge amount of coastal subdivision between the year 2000 and 2007. Much of it remains for sale, some at significantly discounted prices or via mortgagee sale. The Far North is a particular problem, but the problems extend, albeit to a lesser degree, all along the coastal settlements.
Real estate agents in coastal areas were reported in the NZ Herald as saying property prices are down between 15 to 30 percent from their peak, and can now be bought at prices last seen in 2003. The declines in some areas of the Far North are much worse.
It will be a long time before this segment of the market recovers, especially remote areas in the Far North that are more than two to three hours drive from Auckland. It’s probably also going to be a while before households feel confident enough to outlay serious money on an occasional holiday home.
Frank Newman is the author of numerous books on investment matters and the creator of the NZ Investment Game which may be ordered at http://www.investmentgame.co.nz. He is a director of the accounting firm Smart Business Centre. He may be contacted at .(JavaScript must be enabled to view this email address).
