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Bayleys Research


RESIDENTIAL REBOUND?

RESIDENTIAL REBOUND?

New Zealand’s residential market recorded another slow month, with the number of transactions completed in October just shy of 4,500 sales according to the latest figures released by the Real Estate Institute of New Zealand (REINZ). This is in line with the average over the last eight months and down 35% on the volume of transactions recorded for October 2007.

 

 

The national median sale price for residential dwellings showed what could be translated as the start of a resurgence in price growth, with the national median sale price for October 2008 at $335,000, up 1.5%, or $5,000, on the September recording according to REINZ. However, given the volatility of the market at present and the continually low volume of sales, it seems more feasible the median price increase is more likely to be a skewed result based on this low number of sales, rather than the beginning of an upward trend.

When analysing long term trends in the residential property market, it is reasonable to expect a longer period of correction in price inflation. As the graph below shows, the residential market has generally followed a seven to nine year cycle, beginning with a period of sustained growth followed by a correction phase, during which time price growth will decline or remain very subdued.

From 2001 through to 2007 the Auckland Region, indicative of New Zealand’s residential market in terms of price inflation trends, experienced a sustained period of exceptional house price inflation, increasing 105% over the six year period. Price inflation at this rate was unprecedented in New Zealand.

As a result of this prolonged property boom, we should expect to see a longer period of correction than has been experienced in past cycles. Bayleys Research believes that an overall price correction of 10% on peak figures is possible, something we’ve already seen in some areas, and that it will require a sustained period of increased market activity for price to begin to grow.

New Zealand’s property market has certainly moved into a new phase with significantly reduced sentiment affecting purchaser demand. High interest rates and tightened access to credit were previously the major hindrances on the residential market. Interest rates are no longer the issue they were, with an official cash rate at 6.5% and tipped to go as low as 4% by mid-2009. Furthermore, credit is beginning to flow through the banking system once more as central banks globally pump money back into the financial system.

New Zealand is now officially in a recession and with that comes different challenges to property markets. Security in the labour market has reduced markedly with an increase in unemployment announced for the latest quarter. Furthermore, major lending banks are predicting that this will increase, some believe up to 6.3%, so further reduced market sentiment will see people holding off on making investment decisions until we return to a more stable environment.

 

 

On a regional scale, five out of 12 regions showed an increase in median sale price for October 2008 compared with October 2007, the largest increase being recorded in Taranaki, with 8.7% price growth recorded over the 12 months. However, as with the national figures, these median prices are based on very low transaction numbers, averaging around 35% less activity than the same time last year.