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Bayleys Research


FEBRUARY 08 BULLETIN

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RESIDENTIAL PRICE STABILISES FOLLOWING FIVE YEAR SURGE

Latest sales statistics confirm the feeling that the much anticipated slowdown in the housing market is upon us. Growth in median residential dwelling prices has levelled off over the last six months with the December 2007 median of $345,000 being the same as was recorded by the Real Estate Institute of New Zealand (REINZ) in June 2007. This follows a prolonged period of strong median sale price growth, which has seen the national median increase 103% from $170,000 in December 2000 to the December 2007 median sale price.

The number of transactions recorded by REINZ for December 2007 was down on the recordings from the previous month, which is typical for this transition into the holiday season. Just fewer than 6,000 sales were recorded in December, which is one third less transactions than were recorded by REINZ for December 2006 – perhaps an expression of the more cautious approach which people are adopting in the housing market.

 

 

Reserve Bank of New Zealand (RBNZ) Governor Alan Bollard has reflected this in his latest statement in conjunction with the January review of the official cash rate (OCR). While holding the OCR constant at 8.25%, Bollard indicated a reluctance to reduce rates, stating that while the housing market continues to cool, inflationary pressures within the New Zealand economy persist.

It seems that the RBNZ is in wait-and-see mode and all eyes are on global financial markets at present. With an economic recession highly possible in the US, the biggest concern will be its severity and the effect it will have on global markets. A pessimist’s view would be that as New Zealand’s economy is so reliant on off-shore capital, an economic slowdown, which may not be isolated to the US, will almost certainly make borrowing more expensive due to increased risk. This has been reflected in the fact that a number of banks have recently increased their mortgage lending rates despite the fact that the RBNZ has not increased the OCR.

However, while there are parts of the domestic economy which are slowing, there are sectors in New Zealand which are still growing, resulting in a continuingly tight labour market and strong domestic income growth, particularly in the dairy sector. An expansionary fiscal policy is also assisting growth on the domestic side.

Closer analysis of REINZ data over the month shows seven of the twelve regions in New Zealand recorded growth in median sale price from November, led by Northland, which recorded an 8.9% increase to $335,000 in December. Northland has performed well over the two year period as well, with a median increase of 15.5% since December 2005. Again, Southland and Manawatu/Wanganui have experienced the greatest median price increases with 36.4% and 32.2% growth respectively, albeit from a lower price base.

One region has recorded a median sale price decrease over the last 24 months. The ever-unpredictable Central Otago Lakes recorded a 14.5% decrease in median price from $490,000 in December 2005 to $419,000 for December 2007. However, volatility in values is typical of the area due to relatively small sales volumes.

 

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