Property sales likely to pick up in 2009
Filed under: Blog, Property Statistics Responses: 33 Comments
A 50% increase in property sales is likely to be seen in the next few years as the market climbs out from the lowest relative point of the past two decades.
Over this period since the early 90′s we have seen in NZ a 29% increase in the housing stock; adding an incremental 345,000 new homes taking the total to over 1.5 million). This steady growth as a reflection of an active level of migration puts into stark perspective the latest property sales figures.
For whilst the total sales of 2008 at 56,000 was the lowest level since 1992 (closely followed by 1992 at 63,270 and 2000 at 65,332) when seen as a percentage of the housing stock the level of true sales is shown to be a very serious low point for the industry. The chart below shows sales as a % of dwellings each year (the red line is the average level over the period).
The sales in 2008 represented just 3.7% of all dwellings, that is equivalent to just one house in every 27 being sold, or put another way means that on average based on these sales people are moving house less frequently – over the past 3 years that average has moved from 7 years to closer to 10 years.
Now clearly the factor behind the sharp fall in sales is not a cultural shift of lifestyle – it is a function of economic conditions, the market has frozen over the past 12 – 18 months as uncertainty over property prices, access to credit and security of income have come to impact the psyche of property buyers.
At some stage some of these factors will ease and with that will come an improvement in the liquidity of the property market. This will happen in 2009 as the cultural change of property moving has not fundamentally changed and now more than ever an active proportion of the population are looking to move for all manner of reasons. When the right conditions eventuate then the sales will begin to pick up with the percentage of dwelling selling returning towards the average of the past decade of around 6% which equates to around 90,000 sales, a 50% increase on this year’s total.
well said Alister, I also firmly believe that sales volume will increase in 2009. It will be nothing like the volume two years ago, but relative to the last 12 mnths we will see an increase in monthly sales volumes. The public will eventually realise that now is the right time to buy sell and trade while interest rates are at the current low levels, (and getting lower). The ability for people to trade up at an affordable cost is the best it has been for years. And with rates dropping almost monthly it keeps getting cheaper. Cheers
Thanks for your views Jim – there will always be detractors, but I think the key to the liquidity of the market is the issue of true market pricing which is the reality of vendors accepting that prices have and will continue to fall, however if looking to buy and sell in a market offers great opportunity especially to be cash buyer in today’s market.
Affordability is on the improve and these figures illustrate the impact of falling interest rates vs falling house prices:
Right now it is the interest rate drop that is having far more impact than the price drop. Don’t believe me?
OK here goes – for ease of calculation assume a 100% financed purchase in both cases:
House worth $600,000
Mortgage at 9% = $54,000 per year
Mortgage drops to 6% = $36,000 per year
SAVING $18,000 per year on interest rate drop alone
House worth $600,000
Mortage at 9% =$54,000 per year
House drops to $480,000 (20% drop – QV say its only been 8%)
Mortgage at 9% = $43,200 per year
SAVING $10,800 per year
So a 33% drop in interest rates from 9% to 6% (which has actually happened) will benefit you more than a 20% drop in house prices (not happened – yet!) if interest rates stay the same.
Now you can actually benefit from a combination of both house price drop and interest rate drop. What a win win for buyers!
So it’s no wonder they are highly active again!
I disagree that house prices will pickup over the next 12 months, if the global economy and local job losses are anything to go by then prices wont go up, at best stabilise or continue to fall. look at new home permits… down and still falling, mortgagee sales massive increase, interest rates down but banks want 20% deposit now rather than the 5% in past years, so deposit for entry into the housing market has actually got harder.
Food for thought
Cheers Iain
Ian,
Thanks for your comments.
I think on reflection and by in re-reading this post you will clearly see that I do not state that prices will increase.
Prices fell by 4.8% comparing Dec 2008 with 2007, the likely view of 2009 is that prices will fall by around the same figure.
What I believe and state here is that the volume of sales is at an unsustainably low level as a function of exceptional uncertainty in the credit market and global economy. As these circumstances change in 2009 it is very likely that sales of property will rise from the levels of c.4,300 per month to a level more likely around 7,000 a month. For this to eventuate will actually require prices to fall.
I think property market will pickup not in year 2009 but by end 2010.One will have to wait till interest rates comes down to 5% and USD/NZD =0.42 range (similar to year 2002)
Raj,
Appreciate your perspective, we could well see interest rates of c.5% or close to that in the next 3 months, that is likely to provide some incentive to the market, as for the exchange rate that is more governed by the geo-political and economic issues of the US. My view is that the former will provide the necessary stimulus this year which is why we should see greater transactions levels at prices which will be around 5% down.
I think house prices will stabilise over the year. People expecting massive drops will be in for a shock or without a property in 2009. We have been looking for a house for the last 4 months. We noted that over the Dec/Jan period, there has been a lot more activity on houses we liked. Houses are actually selling again. The days of multiple offers and pre-auction sales will be back within the next 6 months. My banker offered me a 5% interest rate (1 year fixed) pricing in a full percentage cut in OCR later this week. You actually losing money if you are renting with interest rates that low. Agree will be tougher for 1st home buyers needing a bigger deposit but overall sales volumes will be higher.
Interesting statistics – agree that increase in proportion of houses sold is likely at some stage in the future.
In the current climate this will mean sellers accepting less for their properties. We’ve seen buyers willing to spend less, and sellers waiting for more so far.
What you haven’t told us is why you think this is likely to occur in 2009, rather than some time later, given it is likely that bad economic news, the driver of the stall in sales, is likely to continue coming for the next 12 months or more.
Raj – I think you will see 5% interest rates within a matter of weeks. People are buying now with delayed possession dates at which time they will either fix at a low rate or wait for rates to go even lower.
Nick
A good question. Part of it is the level of searching and enquiry of properties on both realestate.co.nz and Zoodle – I need to post some updated data on these 2 sites to demonstrate the levels of activity in the market. There is strong interest as substantiated by the comments on this blog post already.
The factor of risk of unemployment hangs heavy over a section of the population but the core buying group (moving uppers) who need to sell to buy are getting closer to an appreciation and an acceptance that prices need to fall to allow the market to break free – the log jam is breaking.
Thanks Alistair,
Will be interesting to see your stats on the activity on these sites. Of course, if there are less people completing sales there will naturally be more people searching as time goes on… this doesn’t necessarily have to translate to sales, in my guesstimation. There will also be a natural growth in the use of these websites with time as more and more people move to the internet as the main source of their information on property. Perhaps a plot of searches and sales volumes over time, stretching back to before the bad news started, would also be interesting.
I agree with that sales activity should theoretically pick up if all things remain equal. That is to say, if credit is available and if people can keep their jobs or maintain income to a level that justfies prices that are still relatively high by most mainstreamm measures. Personally, I’m not at all convinced that a low-interest environment alone is conducive for a revivied property market though. You only have to look towardds the case of Japan for an illustration. On that note, when the Japanese property market began falling after its peak, the country was not faced with a dire international trading environment nor was the the country experiencing record debt levels (it was still actually a net saver). Comparatively, in many of the boxes thatshould be ticked, NZ doesn’t look particularly promising for a property recovery. In fact, I would think there is a compelling argument for continuing gloom and depressed sales activity, despite low interest rates.
I disagree, in fact I think this “recession” is just beginning. My prediction is that we’ll see property prices drop at least another 10% over the next 18 months. The fact that median house prices are (still) only affordable by around 30-40% of the eligible population clearly indicates that growth is no longer possible. Anyone “investing” in residential (or any for that matter) real estate at the moment has their head firmly implanted in the sand. Here’s food for thought – commodity prices are coming off (everything from oil to grain) only because the recession is deepening, any recovery will see a resurge in commodity prices (mostly importantly oil) and a correspondant increase in inflation thereby pushing interest rates back up.
My theory is the lower and longer the price of oil stays the worse shit were are in.
Steve,
A valuable perspective. I actually agree with you that this recession is only in the early stages. We are not in control of the outcome as so much of our economy is impacted by global factors.
As for property it is very likely that prices will fall this year – that is a common view shared by economists (see this post on the Unconditional blog). However my premise here is volume sales which I believe will rise from the 2008 level of 56,000 to closer to 70,000 – this will not be judged to be a recovery, but will see liquidity in the market albeit at a lower median price.
Steve M has an interesting point. I’d like to expand it by saying that if only 30-40% are capable of completing property transactions (in any form), it will probably suffocate market activity to a large degree. Furthermore, Steve’s comment about oil is largely on the money to my way of thinking. As an investment, oil is a much more attractive proposition than property (not that the masses will take any notice and act upon it).
Alistair, I don’t think you put forward a compelling argument that sales volumes are going to increase. With each new post in this thread, you change your opinion! Matters like job security and the weakness of the NZ economy are now impacting heavily on property investment. Although sales volumes are at an all time low, this doesn’t mean they won’t go any lower. The collapse of the US ecomomy will take the rest of the Western world with it. It will be a long time before sales volumes let alone property prices improve. I’d say at least 5 years.
Gordon,
I have re-read my comments on this thread and believe I have been consistent. My premise is that sales volumes will rise, prices will not rise. The state of the economy whilst clearly not about to improve is not the key driver here.
The key is the behavioural aspects of the populations need to move driving a more realistic level of sales – remember a figure of say 75,000 for 2009 would be in relative terms a very low sales turnover, yet a significant increase over the 56,000 this past year.
If you are looking for a compelling argument, I think it lies in the scale of NZ population matched to existing stock of houses, natural migrations and lifestyle – these cause cycles which are typified by rises and falls. If you believe we are in a death spiral rather than a cycle then I think we need to address another agenda.
Prices are now set to stabilise – too much activity happening now for prices to drop much further. Interest rates of around 5% or less are just too attractive.
Alistair –
your point is well taken, at an appropriate price point, volumes should pick up based on historical trends. A couple of observations:
1. The last few years have seen an enormous spike of activity – do you think the market might ‘take a breather’ (especially as people already in the market may not want to ‘realise’ a loss on their asset due to downward price pressure?)
2. With the world economy in turmoil and great risk and uncertainty in many asset classes, do you think many folks are going to be keen to jump back into a market and incur debt? (note – reports today suggest up to 50 million people worldwide may lose their jobs this year, also note that interest rates are subject to global interbank lending rates, not only the RBNZ OCR rate).
Given the economic situation, i would want to see a more compelling argument than that based on “historical averages” and the culture of home ownership in NZ.
Ross:
Are you really trying to convince us that house prices are set (following a minor adjustment) to continue a dizzy climb, due to a reduction in interest rates, despite:
1. NZ is the 2nd most unaffordable housing market globally (based on multiples of income)(http://www.nbr.co.nz/article/nz-homes-severely-unaffordable-39867)
2. We are about to face the most severe economic climate in memory (see above)
3. Availability of credit will be much tighter and interest rates are not guaranteed to stay low?
If so, please address the affordability issue and the macro-economic downturn…
I think a point often overlooked by may commentators here is the fact that to many people property is not an “asset class” – it is four walls, it is place to cocoon, to retire, to grow up, to do-up, to escape, to bring up a family, to start a life…..
Property purchase is often not a rational purchase decision – how many times have you heard the expression:
“I am sure we can find away to afford this house”
“Oh come on this is worth it”
“This is the house I have always wanted”
Yes property transactions need willing buyers who believe they can repay the debt and willing sellers who feel that the price offered fairly reflects the percieved value, but these are often emotional as well as rational decisions. They are not traded options or equity shares in some untouchable entity – this is a home. To these people the time to buy may be just when they feel the time is right!
Some of the comments here suggest NZ is going to defy the worldwide trend of falling house prices. Fat chance! Prices will fall further so now is not the time to buy.
Something else that has been forgotten is the deposit required by banks, now 20% on average. What good are low interest rates when trying to scrape together an $80,000 deposit on the average wage to buy a $400,000 house.
Gerald – I did not say house prices were set to increase, in fact I said above “Now you can actually benefit from a combination of both house price drop and interest rate drop” and that lower interest rates are set to stabilise prices.
The NZ banks are flush with money and only 30% of their funding comes from overseas and interest rates overseas are even lower.
We are seeing people selling at a loss but buying again – they seem to see that there is logic in buying and selling on the same market and are not fazed by it.
With regard to being second most unaffordable that data is now well and truly out of date and irrelevant.
How do you explain the fact that the housing market has well and truly fired up again?
John _ I have just re-read this thread – the comments say volume may improve and that prices will either stabilise or drop up to 5% further. No theme of price increases or defiance of worldwide trend present.
It is a fallacy that banks require 20% deposit across the board.
Only a small proportion of house buyers have a problem with deposits, generally first home buyers and the government shared equity scheme is helping them out.
The majority of people who own a home have owned for more than 5 years and not too worried about prices dropping 8% (QV latest figure) to 13% given that they have gone up 100% or more.
Just today I showed a past client a home – he purchased his current home from me for $290,000 10 years ago – that house is now worth at least $850,000 and now he is looking to upgrade. People who have been in the market for a long while have little to fear in my opinion and a stable or declining market is a great time to change house.
Interesting article, and interesting responses.
It seems to be a very self-seeking article – and I just don’t see it happening. (Why would a real estate website talk about declining sales in the future?)
I understand the difference you are making between price and volume – good that you have separated that and made that clear.
After this steep decline, it seems that the only way is up.
The assumption you have made is that we have reached the bottom.
Unfortunately Real estate activity is tied to our economic situation, which is by means clear – or finished.
There have been a number of interesting stories since you posted this article. The biggest impact is the OCR decision on Thursday. That’s great news for mortgage and loan-holders, but it doesn’t return the market to where it was – or even stabilise it.
Another article I saw stated that 70% of the worlds CEOs do not see a way out of the economic recession any time soon. These are the guys who are in the business of knowing where they are going, and chasing the money. If they haven’t got an idea of when the tide turns, who does?
Yet another article out today is the Building consents have dropped to a 20 year low. This isn’t likely to rise rapidly.
@Ross – Banks DO have to justify who they loan to and higher deposits are now required. You can say that it’s a fallacy that Banks require a 20% deposit across the board – that might even be true. For the majority of lenders – it’s not true.
Further – the majority of people ho have been in the market for more than 5 years – if they sell their house, they still have to buy in the same market.
You’re using some very blanket stats – which nullifies hat you are saying. SOME properties no doubt have increased 100% – not all. Your area does not represent the rest of the country.
@Alastair – It’s an emotional or irrational decision if you can afford it.
If you are smarter than that – it’s really not.
I see the Real Estate market declining for a while yet – and then stagnating as people wait to see where things go with the economy. We are not immune to this, although we probably aren’t feeling the brunt of it like some others are.
Buying in a falling market is like trying to catch a sharp knife.
I’d like to see a follow-up post to this post in 6 months time and in a years time – to keep you honest.
Steve
An excellent contribution with valuable insight. Clearly there are a multitude of factors that effect a market like real estate, added to which real estate is actually only a market as an aggregate of thousands of individual actions.
Unlike commodity markets or product markets, real estate is not a homogeneous product driven by consistent market forces, every action in this market happens at a unique time for a unique property. That is why there is such varied opinion and equally why it is so hard to forecast trends.
My proposition is that there is no record of any developed western economy where a real estate market has stopped – there is always activity as there has been in the past 12 months – at a level half of the prior few years. Clearly in those active years there was a high degree of speculation which fuels more sales. My view is that sales levels will rise in 2009 (again prices I don’t believe will rise – they are more than likely to fall), that is my opinion.
Rest assured this blog will be writing and to be honest more often reporting activity, statistics as will the Unconditional blog on the realestate.co.nz website in 6 months time, 12 months time and 24 months time.
Out of interest one aspect of Zoodle which is at this stage (we have only been operating the site for 15 days) is not yet proven is that Zoodle’s success as a property information website should not be significantly impacted by flat or buoyant markets. Property information and buying property reports should be as relevant in a buyers market as we are in now as well as a rampant sellers market as we saw a few years ago – so in theory there is no self serving element to this blog writing and forecast boom or bust!
I would tend to agree with your summary.
The feeling currently at the coal face in my area of focus (Wellington’s Northern Suburbs) is one of cautious optimism. Certainly, the recent and continuing interest rate drops has stimulated the first home buying market. Open homes are filling up again and homes that have been sitting for a few months are now selling. On the other hand, there are very few homes coming into the market place at present which points to a potential lift in prices in the short term as demand begins to outstrip supply. The supply of money is the one thing that is holding many young purchasers back even though they want to buy. Just yesterday I had a buyer out and looking and he mentioned that his bank of choice not only required a 20% deposit but also required that he had lived at the same address for three years AND had worked for the same employer for three years! I can understand it as a measure of stability, but how staying in the same house affects your potential to pay back a loan I don’t know… I would hope to see the knee jerk reaction that many banking institutions are demonstrating will ease off in the medium term
on the 20% deposit front. I have had further talks with mortgage brokers and an ANZ banking person. 20% deposit is becoming the norm but there are still options for low deposit borrowers. A manager from NZ home loans told me today that she can still get loans with a 5% deposit approved (with conditions!) and she has just lost her ability to get 100% financing approved last week. Kiwibank has a good starter package where they require 15% deposit but this can be gifted – see link http://www.kiwibank.co.nz/personal-banking/home-loans/why-kiwibank/welcome-homeloan.asp
There is also the obvious option of getting someone to guarantee the loan. What better way is there for a parent or a grandparent to help out their child/grandchild. No money needed, just equity… Bet there will alot of this going on in the next few years
David
Really appreciate your perspective and input – valuable to hear as you say from the coal face! – not sure as to the likelihood of short term price appreciation.
I had certainly heard that whilst 20% is the starting point for bank as ever everything is up for negotiation!
The median house price chart at interest.co.nz which can be accessed by clicking my name shows that most districts of NZ have seen prices double or close to it since 2003. Interestingly Auckland and Wellington have not been the standout performers.
[...] for this is the subject of a blog post written on the Zoodle blog in January titled “Property sales likely to pick up in 2009” which I would encourage a review for insight into the relative state of [...]
I bought a 3 bedroom house in clouston park upper hutt for $252.000.The bank evalued the house at time of purchase at $275.000 so im in positive equity.I bought the house in december 2008 on the %20 deposit i put down $54.000 and was hedging $12.000 credit card debt.The house had a new bathroom and kitchen put in a 1960s house.Im in my 40s and was lucky to get in as i was the lowest bidder out of 2 of us the vendor gave it to me because i was a first home buyer.The previous couple before me failed on finance.What hasnt been mention here is that banks now look at your passed spending history ie not paying power or telephone bill on time like i did.I want to sell once the market picks up because id like to move to a warmer place.
i forgot to add that i was a cash buyer and had $66.000 in cash $54.000 for the deposit and $12.000 to cover the credit card debt.