Posts Tagged ‘property prices’
Much comment has been made as to the tracking of the NZ property market as compared to other markets most notably the US and the UK. Whilst comparisons to the US market have been made in the past the reality is there are some fundamental differences (some very well observed comment was make to this effect by Bernard Hickey on the Rates blog as part of his traveling blog series made during his road trip over the new year across the great wasteland of the USA). It is for this reason that this analysis here tracks the NZ to the UK market to highlight past trends and sets some perspective of forecasting the future.
The chosen data sources are the objective data from the Real Estate Institute of NZ Median Price (source data from 1992) and the UK Halifax House Price Index (source data from 1984). I have analysed these two markets over the key period of the last 10 years to look to see the similarities and differences in the index of property price appreciation and then decline.
Starting with the boom times and the priming of the bubble. Based on an index of Jan 2000 the graph below tracks the indexed price appreciation of property through until the peak of the market in 2007. The UK peaked in August 2007 whilst NZ lasted until November 2007.
Clearly over this explosive 7 year period property prices appreciated in the UK by over 140% pushing the median from £83,175 to £201,081. During the same time period the NZ median price appreciated from $170,000 to the peak of $352,000 an increase of 107%.
Given the slightly different months of market peak I have looked at the subsequent decline in prices on a monthy basis where month 1 is the first month post-peak. The data utilises the January 2009 data from both sources in the compilation of the latest trend. The % decline is measured as % decline from peak price month.
The tracking of the UK property price decline in red clearly shows the current property price level off 20% from the peak as that market heads towards 18 months since the peak market price month. For NZ the decline measured utilising the latest January 2009 median price of $325,000 shows a 7.7% decline from the peak of just 14 months ago. The UK price for January did show a single month improvement, however as the Halifax report states “It is always important not to place too much weight on any one month’s figures. Historically, house prices have not moved in the same direction month after month even during a pronounced downturn”.
The desire whenever compiling such data is to see if prior history can provide any indicator of future trends. In the case of this data set, the NZ market over the period of 1992 to date does not include another period of such sustained and significant appreciation. However the UK market data does cover a very similar period during the years 1983 to 1989 which showed for 6 years a sustained and significant appreciation of prices of the order of 128% over that period.
Mapping the 6 years prior to the peak UK market in 1989 against the 6 years that followed could provide some valuable insight. The graph below presents this data represented by the blue line which tracks that 12 year period. Overlayed on the same axis is both the UK (red line) and NZ (green line) property market for the 6 years prior to the peak in 2007 and then the subsequent 14 to 17 months following that peak.
This graph certainly shows the extent of the fundamental difference in the scale of decline in UK prices following the peak in 2007 – the 1980′s bubble and correction looks relatively tame in comparison. As for NZ; to date the scale of the correction does not show as yet such a significant decline now into its 14th month since peak pricing. The remainder of this year will provide a clearly picture for how these 2 markets will trend in the longer term.
The Real Estate Institute (REINZ) has been providing sales data on a monthly basis by price band for over 5 years now and this segmentation is helpful to see where there is activity within the overall market.
The chart below shows on a quarterly basis the proportion of all sales by price band in 4 categories (the $1m+ band was only instigated mid way through 2005).
Clearly with the rise in median price over the 5 year period from$210,000 to $328,500 the proportion of property sales falling into the higher price brackets have increased. Sub $400,000 properties represented over 86% of all sales 5 years ago whereas in 2008 they represented less than 65%.
What is very noticable from the chart is the fact that over the past year the proportion of property sales in the sub $400,000 bracket has reversed its decline and has actually been growing. To demonstrate this a little better the graph below explodes these price band groups to highlight in the green line against the left hand axis the monthly tracking of sub $400,000 property sales as a proportion of all sales. Here the % of all sales for this sub $400,000 category reached a bottom point of just over 60% before rising to over 65% in late 2008.
Equally noticable is the plateauing of the proportion of sales in the intermediary price bands between $400,000 and $1m. The relatively small segment of properties over $1m has remained fairly stable at around 2.7% of all sales over this period.
The timing of these adjustments as highlighted on the graph really hit in late Autumn of 2007 and as the graph below shows this date period reflects the start of the fall off in overall monthly sales of property.
So what can be deduced from this analysis?
The transaction activity in what has been a very stagnant market for the majority of 2008 has been focussed in a growing proportion around sub $400,000 properties, whilst the price brackets upwards of $400,000 has gone exceptionally quiet indicating a combination of a lack of buyers in this sector matched with sellers either unwilling to match the market price of owners or owners not keen to contemplate selling in what has contined to be a buyers market. Equally the activity in this lowest price bracket could reflect a growing liquidity of investment properties within the private landord market.
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