25 June 2010

 Source: NZ Herald

About 10,000 new homes need to be built in New Zealand to keep pace with population growth and ease the current housing squeeze, a report released by Westpac shows.

The report says the number of houses built halved in the two years to 2009, while population grew 0.4 per cent as fewer Kiwis crossed the Tasman.

The resulting squeeze on housing - only the third since reliable data began in the 1960s - had boosted the average number of people per house in New Zealand from 2.52 to 2.55 during 2009.

A rapid growth in construction activity was needed to ease the squeeze, the report says.

“By our calculations the current rate of house building will be enough to keep the number of people per house constant through 2010, but will not be enough to bring it down,” the report says.

Westpac is picking a 23 per cent growth in residential construction for 2011, and even that would only just be enough to keep up with population growth.

Even more would be required during 2012 to make inroads into the shortage.

“Those forecasting lesser increases would have a job to explain exactly where people were going to live,” the report says.

Earlier this year the Salvation Army said the slowdown in the building sector had left Auckland short of at least 6000 homes, with the greatest pressure going on South Auckland households.

Population growth in Auckland had far outstripped residential construction, which had plunged to a 20-year low, forcing more than 20,000 Aucklanders to live in overcrowded conditions, the organisation’s 2010 State of the Nation report, A Road to Recovery said.

Westpac said one way to consider the current situation was to compare the number of people per house to its estimated trend.

“That suggests that New Zealand has a housing shortage of about 10,000 houses,” the report says.

Historically every time New Zealand has gotten into a housing shortage situation, the residential building industry had responded by ramping up production to restore balance, the report says.

“We expect this time will be no exception.”

Fears that difficulty obtaining finance will prevent a pick-up in residential construction, like it had following previous recessions, ignored the lessons of history and economics.

“Market economies tend to find ways of getting around obstacles, normally by throwing up new price signals.

“In this case developers who relied on cheap finance have been forced to sell land, pushing the price of undeveloped residential sections down by 15 per cent since 2008,” the report says.

Over the same period house prices have remained unchanged, therefore the margin on offer for successful property development was now much wider than it was during the boom.

“There is a juicy profit opportunity on offer for larger firms that are less reliant on finance to get involved in residential property development which is precisely what we think will happen,” the report says.

3 December 2009

Recent commentary on New Zealand’s property market claim that it is showing renewed strength with prices back up near levels last seen at the height of the property market in 2007.  However, although there are many positive signs, the suggestion that the property market is booming is really not supported when one examines the market place.  It is important to understand what is driving those property prices up.

Data from the latest New Zealand Property Report showed that nationwide inventory of property for sale has increased in November with 13,857 new listings – up from 13,550 in October.   But, to put this increased new listings figure in perspective, they also reported that over the past twelve months there has actually been an 11 percent fall in listings compared to the same twelve-month period spanning 2007/2008.   This fact supports the perception among property experts that supply of properties for sale is still very tight, which in turn puts upward pressure on property prices.

Another positive sign is the rate of sales, which has seen a ten percent increases on the prior twelve-month period – still down 31 percent on the 12 months to October 2007.  This reflects a steady and stable buying environment and thus, it is fair to conclude that speculation is not putting a great deal of upward pressure on the Auckland Property prices.

That leaves that all-important factor that influences house property prices – namely the right supply of new inventory in places where people want to buy.  Where this is out of balance prices will increase, especially where the supply of existing properties coming onto the market is tight, as is the current position.

On one hand, the national average indicates that there is growth in new listings with 36 weeks of estimated supply, up on the 31.5 weeks in June this year.  However, the New Zealand Property Report points out that the increase is not evenly spread across the country with the major centres actually seeing further decline, whereas provincial NZ is seeing significant inventory increases.

Whilst there are a number of factors one can point to for this trend, there are two that the property investor would note.   One is the fact that in times of uncertain job security, people tend to migrate to the main centres where employment opportunity is greater.  The second is the exit of fringe speculators who tend to be more active outside the main centres where property is cheaper in boom times.

These trends point to the fact that without substantial new housing inventory in the main centres there will be a continuing upward pressure on prices.  Pressure on inventory leads to increased expectations from those with properties in areas of high demand.  Over the last 3 months the country’s median asking price has been boosted to $419,586 – up 3.6 percent on November 2008.  The percentage increase is even higher in the main centres.

The New Zealand Property Report notes that:
“The price rise in Auckland of 4.1% is a direct result of the tightness of the market with inventory levels remaining tight as the flow of new listings seems to be being met by a steady demand. “

One prominent Auckland Real Estate Firm also reported that their median sale price for November was the highest in 23 months. Upon noting that their average price has increased for the third consecutive month, they suggest that:
“The level of activity and strength of prices in the housing market is a strong signal that in Auckland at least property has returned to being seen as a sound, medium to long-term investment option.”

The Institute of Economic Research cautions that “House prices are showing renewed over-valuation”.   However, the Real Estate Institute of New Zealand argues that the signs point more towards a fairly balanced market environment.  It notes that using the Reserve Banks’ stratified house price index, the current (Oct 09) price in Auckland is $480,510 against a peak in July 2007 of $510,197.
- so we are still currently 5.8 percent below the 2007 peak.

What does this all mean for people looking to buy or sell property?  As there is no over supply of property or evidence of high speculator activity in the main centres, property values will remain stable and, more likely, steadily increase depending on the neighbourhood.  New property in sought after areas should experience a higher level of demand with a more rapid turnover than has been experienced over the last 18 months.  The speculative oversupply of housing that has so plagued other international markets is clearly absent in the case of New Zealand property in general and, in the main centres in particular.  Like all things, the level of understanding of the local variables can make for a good or bad decision, but the fundamentals support current and long-term investment in the property market, especially in the main centres.

Ref:  New Zealand Property Report, NZ Herald, REINZ

16 November 2009

Median house prices hit a 10-year high during the month of October.  This was driven by increased demand as New Zealand’s property market faces a shortage of listings.

According to data released last week by the Real Estate Institute of New Zealand, the national median house price rose to $355,000NZD in October – the highest for the past ten years.  This was up from a median of $350,000NZD in September.  Median values increased in seven of the twelve New Zealand districts surveyed.

The volume of sales declined 5.8% to 6,091 from a month earlier as the shortage of properties continued to keep new listings for spring low and helped bump up prices.

Peter McDonald of REINZ said “The rises aren’t, in most cases, dramatic, but slow and steady over the past few months as confidence returns to the market.”

This news comes after state-owned valuer Quotable Value reported that house values in October were up on a year ago and they also claimed that this was driven mainly by a shortage of listings.

Figures from QV valuation are based on a three month moving average and showed that nationwide values in October were 0.2 percent above the same time last year, having been 1.1 percent below in September.  This is the first time this year that values have climbed above last year’s level.

However against increased values, QV valuation also noted the subdued level of sales.  Manager Glenda Whitehead commented: “Market activity remains below normal spring levels.  The number of sales has remained relatively static over the past few months, and there is little evidence of an increase in new listings in most areas.”

This had led to an imbalance in the market with insufficient properties to meet buyers’ demand.  Increased competition among buyers has put pressure on house prices resulting in a significant improvement in New Zealand’s property market.

The considerable recovery in property prices since earlier this year is especially apparent in the main centres.  Auckland Area values are up 2.5 percent on last year, the Wellington Area is 1.6 percent up, Christchurch 1.3 percent up, and Dunedin 4.3 percent up.

Ref: stuff.co.nz, QV Valuations

3 November 2009

Spring has traditionally been a time where New Zealand’s property market sees a marked increase in activity with a surge in new property listings.  However, the anticipated boost in properties for sale did not materialise during October 2009.

In fact only 13,550 new listings came onto the market in October according to the monthly NZ Property Report (released by a leading NZ real estate website).  This is lower than the 16,751 new listings in October 2007 and 14,462 a year ago and reflects a market in transition.  In the twelve months to October there have been 133,956 new listings compared to 170,428 new listings in the prior 12 months spanning 2007/2008.

The market change in the past twelve months is also reflected in the year on year change in inventory levels.  A year ago inventory levels were at 46 weeks with levels now down to 26.2 weeks.

Asking prices in relation to new properties coming onto the market in October remained stable after a significant increase last month.  The average asking price of new properties coming onto the market in October was NZD$418,759 which represents a 3.0 percent increase on the same month a year ago.

These statistics paint a picture of a stable property market re-emerging in New Zealand, on the basis of real value supply and demand rather than the highly speculative market seen in recent years.  This stabilisation is apparent from minimal movement in price-expectation and the low volume of property coming onto the market, with buyers holding onto properties rather than speculating.

The distressed element has left the market place with confidence building as New Zealand’s property market returns to what would be considered a “normal” level of market growth.

We are seeing renewed confidence from builders and developers showing through with a recent increase in building consents.  Building consent numbers act as a gauge as to the level of building activity and Statistics New Zealand’s building consent data showed a 23 percent rise in housing consents since May.

This increased building activity should go some way to relieving New Zealand’s property supply shortage which leading economists have warned of in recent times.  As always, properties in central locations and good areas continue to be highly sought-after and maintain strong values.

Ref: NZ Property Report, NZ Herald

18 October 2009

Data released this month from REINZ, recording the property market’s performance for September 2009, show that the number of houses sold increased 10 percent from a month earlier.

The first month of the ‘spring selling season’ also recorded a 1.9 percent rise in the national median house price from a month earlier.  The median price in September was NZ$350,000 - just below its peak of NZ$351,500 back in November 2007.  September’s median price was also a notable 6.1 percent higher than the median for the same month last year when it was NZ$330,000.

There were 6,464 sales during September, up from the 5,878 sales recorded in August and the 4,499 sales in September 2008.

REINZ President Peter McDonald said the figures “indicate improved confidence of buyers and sellers in the marketplace.”

“We’re seeing a slow, but steady, appreciation in sales value and we’re now back to the prices being fetched in the corresponding period in 2007 when the median was NZ$351,500,” he said.

On average in September it took 33 days to sell a dwelling, down from 34 days in August.  This was 19 days quicker than a year ago and 3.2 days faster than the September average.

ASB economist Jane Turner said that housing demand continued to be underpinned by a lift in net migration and low interest rates.

“The current heat in the housing market is taking some time to cool, with supply sluggish to respond,” Ms Turner said.

While new listings are increasing, it has not yet been enough to meet demand and so house prices are continuing to be bid up.  The “very low” number of days to sell suggested more house price inflation pressure was likely in the next few months, she said.

She also expects that the recent strength seen in the housing market will attract more sellers and encourage new building, which will soon correct the supply and demand imbalance.

However, with some of New Zealand’s prominent real estate agencies reporting high level of sales, (one reported writing 44 percent more sales in September compared to the same month a year earlier), it is expected that buoyancy in the housing market is set to continue.

Ref: NZ Herald, NZPA

12 October 2009

Recent statistics from QV Valuations (a leading property valuation agency) show increased activity in the New Zealand property market for the year to September 2009, with house prices recovering to levels close to that that of a year ago.

This data supports views that the New Zealand economy has emerged from its longest recession in more than 30 years, Reuters reported today.

In many areas of New Zealand, there has been an increase in sales with more listings.  According to QV Valuation Manager Glenda Whitehead, “this increase in activity is normal for spring but there is still a feeling that activity levels are below normal, with somewhat fewer listings to date this spring than was expected.”

It seems that in general there are more buyers than sellers with increased competition among keen buyers edging prices upwards. The average sale price across New Zealand increased further to $387,567 NZD in September from $385,426 in August.

Nationwide values are now up 2.7 percent up from their low back in April 2009, however values are still well below New Zealand’s property market peak of late 2007.

Increasing values in recent months mean that most of New Zealand’s main centres now have values above the same time last year.

The monthly residential price report from QV is based on sale prices of properties over the past three months compared with sales over the corresponding three-month period a year earlier. The data is not seasonally adjusted.

Ref: QV Valuations, NZ Herald

3 October 2009

According to the latest New Zealand Property Report, the serious shortage of properties seen in the past few months looks to have eased.  With the move into the spring/summer period, it is traditional to see an increase in listings; and in September there were 12,674 new listings up 19% on the previous month.

Despite the uplift in listings during September, the level of new listings over the past 12 months shows a 21% fall with 134,873 new listings in the recent 12 months as compared to 172,711 in the prior 12 months spanning 2007/8.   Even though an increase in listings was seen in September, it is not enough to subdue talk of a looming property shortage in New Zealand.

With this increase in new listings came a substantial increase in asking price expectation with asking prices for the month of September up 6% on the previous month. This spike now takes the asking price expectation back to within 2% of the peak of the market in late 2007.

Coming into spring it was anticipated that both of these figures would lift however the increases seen were much higher than expected.

Alistair Helm who analyses this data in his monthly NZ Property Report said, “While we always expect an increase in both the number of listings and the price expectations during the spring/summer period, this relatively large jump on both figures is a strong indicator of improved health in the property market.”

Most significant increases in asking prices were seen in the Auckland region and the upper North Island.  The Reports states: “This data supports the view that the property marketing is most active in the major metropolitan areas whereas the provincial parts of the country are yet to witness this pick up.”

This reinforces the predictions of leading economists that Auckland will lead New Zealand’s property market recovery and given this recent data, it is already exhibiting strong signs of picking up.

Ref: NZ Property Report - September 2009

 19 September 2009

The views of Westpac Bank’s chief economist, Brendan O’Donovan, were recently aired at the Transtasman Credit Summit in Wellington.  His optimistic perspective was that a migration-driven housing construction boom would fuel New Zealand’s economic recovery, with Auckland leading the way.

O’Donovan’s point of view is unlikely to be welcomed by New Zealand’s Reserve Bank and Treasury, who are hoping for an export-led recovery complemented by housing market restraint.

Internationally, O’Donovan noted leading indicators were pointing to a strong recovery in global manufacturing activity in the next 9 months with uncertainty after that time.

However, he was more positive about New Zealand’s recovery where the “big story” was the ongoing migration turnaround.  Last year net inward migration was just 3500 but net migration in the year to July 2009 is 14,500 and it is expected to be headed for 25,000.  The average for the past 10 years has been 11,000.

This increase in net migration can be attributed to the sharp fall in numbers leaving New Zealand, particularly a reduction in the mass exodus of Kiwis to Australia seen in recent years.

This migration turnaround was a key factor in what O’Donovan saw as an impending housing shortage.  At present the housing build rate is a very sluggish 12,000 per year, “it should be running at about 20,000”.

“Given current build rate and migration, you’d actually need about 30,000 houses built to close the gap, it’s just not going to happen.

“The upside in terms of this construction cycle is huge.

“This migration and housing shortage story is certainly enough to sustain the New Zealand growth story for a good few years, three years or so.”

He said that this pick up in housing activity would translate into greater home equity withdrawal and actually spur consumer spending.  This is not what the RBNZ would like to happen as they want to see New Zealand’s recovery export-led, like it has been in most other recoveries.

However, Westpac is optimistic about a “permanent sustained lift in export receipts” driven by improved commodity prices.
O’Donovan also believed Auckland, which fell into recession earlier than the rest of the country last year due to its higher debt levels, was “leading the country out of recession”.

“Super high interest rates last year hurt Auckland more than any other part of the country, the lower interest rates this year are benefiting Auckland more than most.”

In respect of the rest of the country, prospects are also looking brighter.   When dairy prices fell they began to feel the pinch but thankfully a turnaround in dairy prices means that the worst is going to be averted.

O’Donovan anticipates that we will see all parts of the economy starting to lift by the beginning of next year.

Ref: NZ Herald

7 September 2009

Data from one of New Zealand’s leading property valuation companies, QV Valuation, has shown positive results for the New Zealand property market during August.

Four consecutive months of value increases have pushed up nationwide property values 1.9 percent higher than they were back in April this year.

In August the national average sales price increased further to $385,426NZD from $382,758 in July.

QV Valuation Manager Glenda Whitehead commented that confidence appeared to be returning to the market with solid sales activity during August.  The number of sales is up from this time last year when they were at historical lows.

A continuing shortage of listings has sparked renewed interest in property.  The increased competition amongst buyers is resulting in quality properties selling quickly and prices being pushed up.

But Ms Whitehead warned that the recent rise in values was likely to be a temporary surge rather than the start of another boom.

“If more properties come on to the market in spring, as expected, then the imbalance of motivated buyers and the shortage of quality properties could be corrected and values stabilise.”

Property values in all of New Zealand’s main centres have increased in value over the past three months.

Auckland:
The average sales price for the Auckland region increased slightly from $500,315NZD to $502,022NZD.

Wellington:
The average sales price in Wellington rose from $429,571,NZD to $431,614NZD

Christchurch:
The average sales price for the city increased slightly from $342,993NZD to $344,401NZD

2 September 2009

Latest data showing a decrease in new property listings suggests that scarcity of new properties entering the market in New Zealand’s main centres will put pressure on property prices.

According to the latest monthly issue of the NZ Property Report, the level of available inventory nationally — the number of weeks it would take to sell the country’s entire available stock based on average sale times — was down 34 percent on a year ago in August.

The monthly NZ Property Report summarises changes in the property market based on new listings and movements in asking prices (as opposed to actual sales prices). The nature of these statistics provides a forward-looking perspective of where the property market is heading.

The Report for August reflects a stable position in New Zealand’s property market with little movement in asking prices, level of inventory and level of new listings.   However, new listings decreased slightly when usually an increase is seen just before the ‘traditional spring upturn’.  There is concern that new listings will not be sufficient to meet the anticipated increase in demand.

The NZ Property Report states that “Spring is one of the most active periods of the year and with constraint of new listings; the market may not be able to meet this demand without consequential impact on prices.”

This news supports findings in the recent report from Infometrics, which suggests that New Zealand house prices will rise.  The report forecasted price increases of up to 24% in New Zealand’s main centres due to a shortage of new housing and increasing demand from buyers driven by low interest rates and an increase in net migration.

However, with asking prices remaining steady throughout August, prices are not yet reflecting this anticipated pressure on property prices.  If potential sellers continue to hold off listing properties, the shortage of available stock could push prices up over the coming months.