Property market drop might not only be down to holidays

REINZ president Murray Cleland played it down, saying that fewer sales were anticipated in December due to the holiday break and in a market that had seen strong growth over the past seven years.

However ANZ chief economist Cameron Bagrie views the latest data less positively. “Abstracting from seasonal variations, volumes fell 8% in the month and look pretty weak across all price segments,” says Bagrie. He says while prices are still up 4.5% on a year ago, “they haven’t really moved since April, and in fact a $7000 drop in the median sale price in the month is reasonably chunky. We’ve only seen that a couple of times before”.

Nationwide, 5597 properties sold in December compared with 7837 in November and 8245 in December 2006. “It looks like the steady increase in days to sell seen over the previous months is now starting to reflect in softness in the price growth series as sellers become more realistic and buyers cautious,” Bagrie says.

The trends in the REINZ December data are consistent with the trends reported by QV for December, says Steve Langridge, general manager of QV online.

Cleland acknowledges a number of factors are currently impacting on the housing market including the increased cost of home finance following rising interest rates and slowing immigration. While the median sales price and the number of sales were both down on the previous month, the median days to sell, a key market indicator, remained steady at 36.

“Despite some commentators’ predictions, there is no discernable erosion of property values,” Cleland maintains. “While successive interest rate increases have impacted on the number of properties sold, prices remain steady. This suggests the market may have reached a peak and is now levelling off after a very strong performance over the last seven years. Over that period the national median selling price has more than doubled from $170,000 in December 2000 to $345,000 at the end of 2007.”

Looking forward, Cleland expects the recent jump in fixed lending rates will continue to keep the market soft into February and March.

“Looking ahead we expect that the market will pick up with more properties changing hands in February and March, once the seasonal downturn associated with the holiday period is behind us. However, it is unrealistic to expect the stellar increase in prices as seen over the past seven years to continue indefinitely with the market now entering a period of consolidation.

Langridge says, “We would fully expect an increase in market activity and sales volumes across February and March, however that activity won’t be at the same level as February and March in 2007.”

“Further increases in interest rates would likely result in buyers becoming even more cautious and potential vendors possibly deciding to stay put for the time being, meaning fewer sales than expected over coming months,” Cleland said.

“With the Reserve Bank on the inflation warpath, continued moderation in the housing sector is looking like a precondition to taming the inflationary beast,” says Bagrie.