House sales slump in January to lowest level in 18 years (Update 4)

Total residential dwelling sales plummeted last month to their lowest level in nearly two decades, as seen in figures released today by the Real Estate Institute of New Zealand (REINZ). Real Estate Institute of New Zealand President Peter McDonald says the total figure of 3,666 dwellings sold in January this year was the lowest monthly total since electronic records began in 1992 and was only the second time the total figure had dipped under 4,000. "Activity in the residential property market was quiet last month on the back of uncertainty over what actions the Government intended to take on the recently announced tax working group recommendations," he says. "Hopefully the market will start to pick up now things are a bit clearer after the Prime Minister gave his opening speech to Parliament on Tuesday. He indicated the Government has ruled out proposals to introduce a land tax, comprehensive capital gains tax or new tax on residential investment properties." The total value of residential sales, including sections, in New Zealand in January was $1.53 billion. January's total of 3,666 was 40 fewer dwellings than were sold in January 2009, the first time total dwelling sales fell below 4,000 and 1291 down on December 2009. The breakdown of the values of the properties was 87 for $1 million plus, 395 for $600,000 - $999,999,937 for $400,000 - $599,999 and 2247 under $400,000. The median residential house price rose in 11 out of 12 districts last month (January 2010) compared to the same period the previous year. The national median of $350,000 was up 7.7 percent on the corresponding figure of $325,000 for January 2009, but was $10,000 down on the median price for December 2009. "House values seem to be holding nicely at the moment though and it's becoming a more settled market as times goes by," Mr McDonald says. The largest gains were Otago, up 17.9 percent to $247,500, followed by Taranaki up 12.5 percent to $300,000 and Canterbury/Westland, also up 12.1 percent to $319,500. Central Otago/Lakes was the only region to experience a drop in median prices, down 10.4 percent to $410,000. Auckland residential sales, including sections, accounted for $666 million of total sales in January. Canterbury/Westland and Waikato/Bay of Plenty were the next greatest value at $191m and $183m respectively with Wellington not far behind at $172m. The national median for days to sell in January was 43, 16 fewer days than the corresponding period a year ago but 10 more days than in December 2009. Sales were quickest in Southland at 33 median days and in Auckland where the median days to sell was 36.

Here are the full details in REINZ's release. REINZ Residential Market Statistics - January 2010 ASB economist Jane Turner said the figures showed the market losing momentum as seasonally adjusted sales fell 17% in January.

We remain slightly wary of sales figures around summer, as the housing market is heavily affected by the holiday period over December, January and to a lesser extent February. Adjusting these figures for seasonal effects, days to sell was unchanged at 35 days, still below average levels. The REINZ stratified house price index saw house prices fall 1.6% over January, following the 0.9% decline in December. Monthly data can be volatile and this series is not seasonally adjusted. Running our own seasonal adjustment, house prices remained flat over December and increased 0.3% over January. While the REINZ data do suggest some of the intensity in the housing market is easing, the seasonally adjusted days to sell and house prices suggest the housing market is not yet as weak as some reports over the past few days have implied. Nonetheless, one area pointing to slowing demand has been the lift in the level of housing inventory relative to sales. On a nationwide level, this ratio is quickly heading back toward levels seen during the weakest period for the housing market in 2008 (on a seasonally-adjusted basis). The shift towards more supply relative to demand should see days to sell continue to lift over the next few months, and see house price increases slow or even decline. During January, the Tax Working Group came out with strong recommendations that the Government needs to change the tax treatment of housing. This has introduced considerably uncertainty into the housing market, which is likely to linger for some time. This week, the Government ruled out recommended measures such as capital gains tax or land tax. However, we do expect the Government will make some changes to the tax treatment of property. Two potential options are remaining, the ability to claim deprecation (recommended by the TWG) or ring-fencing tax losses from property so they cannot be used to offset other sources of income. The lack of complete clarity over what the Government will do means the market will continue to be weighed down by uncertainty until the end of May, and could reduce house sales and price pressures over the next few months. Once tax change is implemented, its likely result will be some decline in house prices (or smaller increases). But, as observed throughout the recession, nominal house prices tend to be fairly "˜sticky' on the downside. Many homeowners are often unwilling to sell at lower prices and might still prefer to hold onto a property if possible. This dynamic could reduce the downward adjustment, with house prices more likely to remain at current levels for an extended period. The housing market is starting to slow and becoming more balanced. Due to some uncertainty around tax policy until May the market is likely to remain subdued for some time. This development adds further breathing room for the RBNZ. The pick up in house prices of the second half of last year was surprisingly strong and did present a risk of reigniting unsustainable credit growth and consumer spending, at a time when a focus on increasing savings was needed. Fortunately for the RBNZ, the Government looks likely to step in and help even the playing field. Changes to the tax policy around housing will reduce the amount of work monetary policy needs to do to bring inflation pressures back under control. We now expect that the RBNZ will not lift the OCR until June, and by 25 basis points. The rise in bank funding costs has placed a wedge between the OCR and retail interest rates. This dynamic, combined with an economy more sensitive to interest rates increases, suggests small OCR hikes will have a powerful effect at keeping inflation pressures at bay.