QV sees stabilising of house prices in Auckland spreading to other areas; says activity drying up after Easter

QV sees stabilising of house prices in Auckland spreading to other areas; says activity drying up after Easter

The QV price index remains 5.8% below its late 2007 peak.

By Bernard Hickey

Government-owned property valuer Quotable Value has reported residential values were stable in April from March, but remain down 1.9% from a year ago and down 5.8% from the market's peak in late 2007.

Prices had stabilised first in Auckland and this stabilisation appeared to be spreading to other parts of New Zealand, although activity was patchy and appeared to have slowed down after the Easter holidays and school holidays.

“The levelling of nationwide values was initially due to a flattening of values in the Auckland market, but there are now increasing signs of values stabilising in many other areas also” QV  Research Director Jonno Ingerson said.

“In the Auckland area values have moved within a narrow band for most of the last 18 months. In recent months values have been slightly variable, but there is little evidence at this stage of values moving significantly up or down. Currently values in Auckland are 0.5 percent below the same time last year, ” Ingerson said.

“Values in Hamilton are 3.5 percent below the same time last year, but in recent months values appear to be flattening off. In Tauranga values are 1.7 percent below last year, but also appear to be flattening in recent months. The Wellington area is 3.4 percent below last year, with most of this drop coming in 2010, while over the past six months values have been moving within a narrow band. Values in Dunedin have dropped more over the past year than the other main centres, but may also be stabilising in recent months."

“There was an increase in sales activity in March and the first half of April, but this appears to have dropped away following the Easter and school holiday break. Sales activity typically tends to slow from now through until spring,” said Ingerson.

There had been a significant slowdown in sales in Christchurch since the February earthquake, which meant QV had not generated an index for Christchurch.

"Local valuers in Christchurch are seeing plenty of interest in quality properties in relatively unaffected areas, and prices have been generally holding. There is still a great deal of uncertainty in the market, particularly driven by concerns over job security,” said Ingerson.

While unrelated to the QV index, and a less reliable measure of value change, the average New Zealand sales price over the last three months is NZ$405,310 up from the NZ$400,656 reported last month.

See our article on Barfoots' figures for April, which showed a drop in volumes and average prices in April from March. Full REINZ figures are due this Friday.

Despite values levelling in recent months in many provincial areas, none currently have values above the same time last year. This recent levelling of values, coupled with declining values last year, means that the gap between this year and last year is closing in many areas.

Whangarei (-5.2%), Gisborne (-4.6%), New Plymouth (-4.5%) Palmerston North (-3.7%) and Invercargill (-3.9%) have the greatest gap compared to last year. Rotorua (-1.0%), Hastings (-1.4%), Napier and Wanganui (-2.4%) and Queenstown Lakes (-1.3%) all have values slightly below last year.

In Nelson values have been relatively stable since January 2010 and as a result the gap between last year and this year is only -0.7%.

(Updated with detail, chart, link to Barfoots article)

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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42 Comments

Talk to any agent or solicitor and they will tell you the housing market has gone quiet all of a sudden throughout New Zealand which accords with what QV are saying today. Anyone who needs to sell needs to try and do it now before winter as we all know what that brings. Less buyers wanting to go out in the shitty weather and properties not looking their best. This was always inevitable as inflation bites hard and the average kiwi just like the average Aussie is struggling to make ends meet.

Correct.  The loans approval data was showing signs of a recovery in late Feb/March, but the numbers have now slipped back below the low levels of 2010.

Sobering facts about Real Estate in the US at the Burning Platform:

http://www.theburningplatform.com/?p=15599

We must be really "different" or what?

If one has just a rough guess what lead to the demise of real estate prices in the glorious US,

(mountain of government debt, mountain of private debt, unemployment, demise of middle class)  one can conclude we are on the best way to catch up soon, we are just a few years behind, like always.

but G T it won't happen here because "WE'RE DIFFERENT" .... just ask PoP, SKunk and Ratmeister et al

We are already 4 years "different". House prices have survived the credit crunch. What makes you think they will drop now?

becasue the GFC isnt over....round 2 is probably just starting.....then there will be round 3 and round 4 this is an effect of peak oil.....sooner or later housing will succumb its just a Q of when.

regards

History would argue that recessions don't last much more than 3 years. But let me guess, "this time it's different?"

GFC saved (temporarily) the housing bubble in NZ.  Just as everyone was struggling to pay their mortgages even though they still had their jobs interest rates plummeted.

J J  - what makes you think prices will go up?

Do the math, everyone knows that  even when prices are stable, property is losing  ....  all your mortgage interest repayments are wasted money.

Good news that QV is letting everyone know prices are going up

i guess on the bright side those punters that have lost some skin in the property game (5.8%) still  have a tangleable asset physically there and they haven't lost all their chips like those in financial funds, hanover, blue chip and all those other rotten money stealing horrible people.

additionally vaulations go up and down and its at times difficult to value the property when the comparable properties are historic and we have just come out of a bit of a slump.

it onwards and upwards for prices in the right places, by well manwell.

President of Property

...real losses on property since 2007 likely to be around 20% now.

--5.9% below 2007 price (current QV stats)

--5% interest you could have been getting in bank ( x 3 years)

A mugs game to be holding residential real estate

 

 

Interesting calculation......do you work for the IMF ?

...nope, just financial math basics. You do a "real" return calculation either by deflating by annual infaltion or annual cost of capital.

I'm in no way implying that prices aren't plummeting, however two queries;

You appear to have missed out the income generated by the property (or the rent that's not payed by living in the property).  How come in your calculation only investment in bank gets a return on investment?

Also you assume that 100% of the value of the property would otherwise be in the bank.  How does it affect your calculation in the more common scenario where there is borrowing involved - i.e. you have the option of investing 20% of the value of the property in the bank versus getting say even a 3% return on 100% value of the property after borrowing costs and expenses?

 

...you're right bob, see below for part borrowed calculation. If you have 100% cash purchase, have 3% net back in rents, net loss compared to bank is 2% p.a. So real loss would be 5.9% + 2% (x3) = 11.9%.

You're getting your apples and oranges a bit mixed up there rp.

If you are going to include the funding cost you need to also include rental income (if a rental property) or rent not paid (if it is your own home).

...yes guys, there will be income from the property and probably interest payments as well. You need to work it out off net cashflows. My assumption is that if your interest payments and costs such as rates offsett rental income (a fair assumption since most properties yeild under 5%).

 

e.g you have 50K and buy a 400K property, so loan 350K

- interest cost $21K per year

- rates, insurance etc, 3K per year

- rent recieved $400 p/w = $21,000

=net negative to zero income

In this case loss on your 50K is 20% since 2007 i.e. as above

So what you are saying is that one of the worst crashes in property prices in NZ history  has only caused a 20% loss and it is almost all due to inflation!! Hmmm, sounds a bit better than even a minor share crash.

Worst?  In terms of no clear gains, it hasnt been good but the GD was worse....however the GFC isnt over yet.

regards

 

Gee, another month goes by and still the housing price collapse predicted by many on interest.co.nz shows no sign of manifesting itself.

That means I have to wade through another month's postings telling us a collapse is coming.

This is getting boring guys, well Nick A, Woll, Bernard et al. Go on...admit it, even you are getting bored with always only predicting it.

Still waiting. Keep me posted :) 

 

Not just us, Your Landlord ! "New Zealand house prices appear to be overvalued by between 15% and 25%, the International Monetary Fund says...the IMF also says - based on the OECD's price-to-rent ratio, that rents are 43% overvalued compared with the past 20 years. However, the measure includes government subsidised rents which has pushed up the ratio over time as subsidised rents decreased, most noticeably in 2001. An alternative measure excluding subsidized housing suggests an overvaluation of 15% to 27% when compared with historical averages."

Oh, and the IMF are also suggesting that our interest rates could fall further. We all know what that means! We're in such strife that we are in danger of economic depression - that's more asset sales coming up. Ours ( the countries) and yours ( your properties) to pay back debt!

Isn't 'current policy' then to be easing? After all, that was the last move, not upwards a la Australia. But I do disagree that 'there is no scope' for others to cut. Switzerland had negative interest rates for a while a few decades back to discourage capital inflow. Who says 'rates have to stop at zero'?

I'm sure Aunty Helen is involved somehow too....

The crash will be coming any month now.....just like the end of the world.......keep

waiting......keep waiting........a bit more patience......our reward will come......eventually.......

"All good things take time"

Hate to say it, but, seeing more sold boards in Hamilton recently!

Excellent news, ian! Sellers finally realising that they have to hit the bid before it's too late...

It takes two to tango NA. The "sold" boards indicate also that the buyers are finally realising that they'd better buy now before the rising phase of the price cycle begins...

Pop,

Clearly, the ability to comprehend text is not a requirement in your job.

QV say that prices are stabilising (i.e. have almost stopped falling) and show no signs of going up or down much.

How does that equate to a forecast of price increases?

and then we allow for inflation.....so 2% core or for the "CPI" brigade, 4.6% loss this year alone....

regards

POP's eyes are still glazed over with the thought of making hundreds of thousands of dollars investing in property.

Basic human nature is that people feel far more emotional pain from sustaining a loss than the emotional pleasure they get from an equilavent gain. Something like twice as much pain from a loss than pleasure from a financially equilavent gain.

This is why some people who have already made substantial financial and emotional investments in something (ie how I imagine POP and Westminster have made in property) will fight tooth and nail to deny losses. It just hurts them too much and they cant deal with reality in an objective and rational manner.

Also why people end up at mortgagee sale, rather than selling up, taking the hit and moving on with life. Whether that happens to any of the commentors on this site remains to be seen, but a few of them certainly qualify to be heading down that path.

Because inflation only affects property...right ?

....it affects all assets. The formula if you want to calculate the return for youself Kermit is as follows:

 

Cahsflow yr 1       Cashflow yr 2         Cashflow yr 3

------------------   +   ------------------   +   -------------------  = net present value

    (1+I)^1                    (1+I)^2                      (1+I)^3

 

I=cost of capital

 

 

...true Wesminster, I'm talking investment property. See above I've given my calculations from an average example. Others bailed me up on it also. With owner occupier different calculations of course. 

The reason property prices haven't dropped significantly is Govt borrowing.......with an extra $380 mill per week  sloshing around it's propping everything up... once the stimulus is removed expect to see some real panic...this months budget will signal the first round of spending cuts, with several more rounds to go...

...exactly. I wonder what the numbers are for accomodation and income supplements etc...that are artifically stopping the market returning to non-bubble levels (i.e. equating to 3 times average income or a 7-8% yeild to rents). Anyway, the longer the government does this the bigger the eventual fall, as New Zealand will have all the international lenders' interest payments on us.

The borrowing isnt really for stimulus its to keep paying bills....now yes that means we dont do an Eire or USA where public service salary cuts and job losses meant far less spending which in turn has caused more collapse.

Growth through austerity is absolute rubbish, if indeed the Govn cuts its spending this budget and frankly I dont see how  then that will send us into a tail spin....we have two classic cases of that above.....and the UK seems to be doing a third one........

So yes I wait with baited breadth.....BE is stuck between a rock and a hard place....the only sane option is a tax increase and I cant see it....

regards

 

Gee, I wonder what the market clearing price of our housing market is - in other words, making the assumption that the market clearing price is [a drop of whatever percent] based on an equilibrium of the long term average in inventory?

http://en.wikipedia.org/wiki/Market_clearing 

Any economists out there who know the formula for such a calculation?

I think that calc might give us the best guess of what kind of drop we might be able to expect to get to the 'new normal'.

 

From my personal recent example (anecdote is not evidence and all that):

2007 house purchased for $365,000 sold in 2011 for $368,000 (RV $370,000).

Spend on improvements $12,000  (not maintenace or renewals which were probably another $6,000 on top).  Real estate and legal fees $14,000, cost of shift about $3,000 by the time I sort fencing and gates at new place to make child and dog proof.  I still have to fight off the "we need a new couch in the new place myth my wife is perpetuating".

Net loss excluding inflation $26,000 or 7%. Four years of inflation say 12%?  Loss of 19% assuming if we had invested instead of owning a home that return on investment would have covered our rents, which I think would have been about right.

Would have prefered to sit and hold another 5 years but family situation meant we made the choice to go to a bigger home.  Sigh.  Back into mortgage land.  Wish me luck.

on the upside I don't anticpate another move for say 20 years  :-)

It just depends on where property is and how it was valued.  I know of property that sold for 1/8th of pre-crash valuation, however in another neighbourhood stuff that went for $600K at the peak now goes for $800K.  That's a variation from an 87.5% decrease in value to a 33% increase in value over the last 4 years - or if one averaging those 2 examples you could  generalize a property in NZ has dropped 27.5%

It must suck to have a portfolio that consists of nothing but residential property.

A large percentage of the huge number of people in that position took on that property (and the debt) around the peak of the residential property bubble.

No wonder they sound so desperate and bitter when attempting to defend the crumbling dream.