Blog: The Landlord says...

The little theme of this week’s newsletter is about looking ahead at the property market and what is happening. Pondering the market is something we often do and it is worth addressing again as there is so much uncertainty and change.

While the news has been pretty gloomy and the housing market appears to be dead, I wonder if it is as bad as some make out?

As readers know we try to be a bit more balanced in our view on the market and look for positives as well as negatives.

One thing that strikes me is winter is always a moribound season for house sales; this year is no different.

Some interesting figures from Alistair Helm yesterday show that the trend quite well. Often when we enter the spring period the market lifts quite swiftly.

On a month by month basis the last set of numbers looked sad. However its worth looking at them with a longer term view.

Helm’s reports says sales fell by 2.9% from June to July, and a total of 4,411 property sales were recorded by licensed real estate agents in July.

Back in July 2009 the total sales was 6,014. On a moving annual basis sales are up 2.8% with 63,701 sales in the past 12 months as compares to 61,952 in the prior 12 months.

The stratified price fell from $363,925 in June to $359,525 in July. The June price is up just 1.8% as compared to July 2009.

Sale prices across the country has remained fairly stable over the past nine month with some small ups and downs. The current price is still 3.1% below the peak price in the market back in November 2007.

Looking ahead there are a couple of warming signs. One is my discussions with real estate agents. No-one shies away from the fact June and July were awful periods. However, word getting back to us is that August has been far better with more buying activity and more stock coming onto the market.

While we put together the September issue of the NZ Property investor Magazine we also came across comments that were far more supportive of the market than one would believe if they listened to only some commentors and media.

Everyone agrees it is a buyers’ market and those in the position are doing just that. Again comment which came through was that it’s better now as “there has been a clean-out of timewasters, dreamers and fly-by-nighters.”

The other slightly positive factor was last week’s immigration numbers. (Read about them here).

And if I had to add another it would interest rates. The emerging view is that the next official cash rate will come later rather than sooner, and overall the increases will be less than what we have seen in other cycles.

So the next set of numbers will give us a good feel for whether these positive signs turn into activity.

I started by talking about looking ahead and finding out what is happening in the market. You can help do that too. The annual ANZ/NZPIF survey is on. You can take part here (and go in the draw to win a prize).

It seems like we are into another round of mindless predictions about how low the housing market is going to fall.

There is no doubt the housing market is going to remain soft and subdued for a period of time – just as the Reserve Bank governor Alan Bollard wants.

Two pieces of information came out recently which make a lot of sense around what will happen.

One comes from the ASB in its quarterly confidence survey. Most people agree that there is an issue with affordability. That is when you look at the economics globally it appears New Zealand house prices are expensive relative to income levels.

However that doesn’t mean, as some have wrongly argued, house prices will fall to “where they should be”. Rather, as ASB says, house prices won’t go anywhere fast and they will wait for incomes and earnings to rise and meet them.

The other point, and one which annoys me somewhat, is that many commentators talk of the New Zealand housing market as one big homogenous market. This is rubbish.

QV provided some excellent graphs with its monthly commentary yesterday which show what has happened to houses in the main centres over the past few years. If you haven’t seen them you can find them here.

They are fascinating as they show that each market has its own characteristics. For instance Hamilton and Tauranga show similar trends, but they are different to Auckland.

It seems Auckland is far more bullish than other centres and again this comes through in the ASB survey which shows Aucklanders think their house prices will rise more than other centres.

When it comes to factors driving the market I am not sure house buyers and investors give a single thought to factors like what is happening in international markets.

They think of interest rates, rents and prices.

The one economic factor which does stand out in this market is immigration.

It is here we have seen a big change recently – more people are leaving this country – which will undoubtedly impact on the overall housing market.

This is the week of market data, which is probably why the headline hunters are out. A recurring message is that the market is slow and subdued.

What interests me is why it is like this. Investors appear to be staying in the market, some of the pressure has come off interest rates and it is considered a buyers’ market. Why then is there not more action?