Alistair Helm looks at the trend of housing sales volumes and finds 2017 a year where volumes came in below long run averages, but the rate of the year-on-year decline was easing by November

By Alistair Helm*

It is time for me to get back into the swing of writing articles on the status of the property market in NZ. I thought that since it’s over 3 years since the last such analysis I would start with a bit of an overview and what better time than the close of the calendar year.

2017 could best be described in my view as a bit of a ‘steady’ year – certainly not the most dynamic, but then again not a particularly ‘frothy nor exuberant’ year.

In this regard the pressure of an overheated market witnessed in 2015 and 2016 seems to have somewhat abated – not I should stress that the heat has gone away, simply that the pressure valve has been reduced somewhat.

I like to start any analysis with sales volumes, which in my view is the most important indicator. The volume of sales and to a lesser extent the pace of sales, reflect the confidence of property buyers and sellers to engage in the market.

In the past year total residential sales look to be at the level of 74,500. A level almost identical to the recent years of 2012 and 2014, and fully 19% down on the recent heights of 2015 and 2016 which topped 90,400.


Residential property sales have been falling (month vs month prior year) since June of last year, a consecutive run of 18 months. At that time the 12-month total of sales amounted to 94,631, this has fallen to a level in November of 74,187. That is a fall of 22%. However by analysing the variance trend, it can be seen that rate of decline is slowing and by early next year the trend is likely to be reversed and sales will show year-on-year rises.


By then, this decline will have represented the second longest consecutive run of falling sales since the turn of the century (the GFC period of May 2007 to Feb 2009 was 22 months of consecutive declines). That GFC period saw a significantly drop in property sales. Total annual sales dropped by close on 50% from 106,000 in the 12 months to May of 2007 to just 53,000 in the year to Feb 2009.


While sales volumes are the best indicator of the state of the property market, there is an important denominator that needs to be considered when looking at time-series data; that is, the number of actual residential dwellings in NZ over time.

When the Real Estate Institute started collecting monthly sales data from agents back in 1992 there were around 1.2 million dwellings. Speed forward to today and that number is now over 1.6 million, an additional 400,000 new dwellings. This denominator therefore needs to be laid as a measuring rod against any comparative sales figures. The chart below tracks the residential sales figures over that period as a % of the dwellings in the country at the time to show what proportion sold each month as moving annual total.


Over the past 24 years, the long term average rate is 5.8% of all residential dwellings are sold each year. At the very peak of the market back in the early years of this new century that rose to a peak of 8.5% in 2004, post GFC that figure slumped to just 3.5%, currently at this time we are sitting at around 4.5%.

I have in this analysis kept to the volume of sales as the single data point, this I believe is key in analysing the market as price does tend to follow transaction levels, something I will explore in a future article.

As to the ever present question "so what is the property market likely to do in 2018? - well the fact is forecasting the property market is not an exact science. To back me up in this assertion, I was heartened to hear the Managing Director of the IMF Christine Lagarde make just such a statement in regard to forecasting on a recent podcast from Freakonomics

“Forecasting is not a mathematics science and is more an art than (then) something else, although there is a huge effort on the part of our teams here to improve and refine. But there are totally unpredictable events and there are things that we simply do not understand, which are related to human nature, with behavior, as the Nobel jury has recently acknowledged by celebrating and acknowledging the contribution of behavioral economists”

— Christine Lagarde : Managing Director, International Monetary Fund

If one of the leading bankers of the world recognises the uncertainty inherent in forecasting, who am I to try to second guess as to the future of the NZ property market!

The above article was written by Alistair Helm, and is republished with his approval. The article was originally published on Properazzi here.

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My goodness – a property article and after 2 or so hours not a single comment.

No-one predicted that!

It shows the biggest gains have occurred while sales have been below average, not something property doomers want to comment upon, as it blows their low sales = apocalypse 'theory' into pieces.

Latest change by China to limit overseas withdrawal of 100k per person compared to previously 100k per credit card...

Sure some of the recent sales would be impacted?

It's definitely good news and its 100k yuan too so would be quite a significant drop from the current status quo. Plus it looks like the enforcement is being stepped up.

Article articulates the start of the New Year, repeats the same as last year...It is all about Houses.

Debt will be ignored?.

Not entirely. I think the RBA had a word with the Aussie banks:

Of course, the RBNZ and sundry rat bag politicians will try to take the credit, but the Aussie authorities are more, well, authoritarian.

After that effort and rather nice graphs, Alistair quotes Lagarde and suggests that he couldn't forecast his way out of a paper bag. At least he's honest with himself. Nevertheless, that won't stop the commentators (who seem to be plentiful in NZ, particularly those with chutzpah like the Hosk, Ashley Church, and Leighton Smith [a particularly odious creature]). Another branch of soothsaying will be the industry "professionals" who happen to get their break with a quote in the media. Funny that in lil' ol' Nuzilun, a sales job or career is also seen as an opportunity to develop clairvoyant powers about house prices. Further down the totem pole, the army of BBQ soapbox participants who eagerly and regularly map the future from divine revelations from Fairfax are really not much more than avid gamblers with somewhat of a "counting cards" system (even though it is not really anything of the sort).

The most disquieting thought is that "they might be right!".
Imagine if QE, lower interest rates and market manipulation works. Imagine if Ben and Janet and Mario and Shinzo pull this one out of the fire. What next time? Who will be nuts enough to save, and not borrow to the gills and speculate? No one. And that's the fallacy of this environment. If it works the 'success' of King Pyrrhus will be evident, everywhere...

QE has worked but at what future cost remains an open question
See if you can condense your response BW

QE has worked but at what future cost remains an open question.

Well that's exactly right. What are our focal points to determine this? For ex, in the case of Japan, deflation has transformed the economic profile of the economy and society. However, the West (and China to some extent) has decided that deflation is not an option and the Japan experience need not necessarily apply. However, consider that Japan has pretty much exhausted its scope for public expenditure except for the direct transfer of funds to individuals and households. In the case of NZ and Australia, the middle class would be ravaged without some kind public support (WFF is a prime example).

I think the "future cost" needs to be viewed as "ramifications." We are entering the unknown.

The most disquieting thought is that "they might be right!".
Imagine if QE, lower interest rates and market manipulation works. Imagine if Ben and Janet and Mario and Shinzo pull this one out of the fire. What next time? Who will be nuts enough to save, and not borrow to the gills and speculate? No one. And that's the fallacy of this environment. If it works the 'success' of King Pyrrhus will be evident, everywhere..

It still seems that the banks and media are sending patronising advice on the importance of savings. However, for whose benefit? For the future financial health of savers or for the banks to support their capital ratios?

QE has worked in that it has maintained a status quo.
It has increased the gap between rich and poor and added a huge amount of wealth to the top one percent. For the vast majority it has done nothing. We have substandard economic growth, real wages are stagnant (in the US since the early 80s!!) and we are awash with inefficient zombie businesses who are staying alive through an endless supply of cheap credit. They starve capital for new business and the dynamism of capitaism dies. This is why we have such average growth, far lower then in typical recoveries. We are pushing on a string, credit is choking the economy.
Fortunately we have facebook, twitter, reality tv and a 24 hour news cycle to keep us afraid and ignorant. And in NZ, we have the "wealth" of our incresing housing stock value to make us feel like we are not missing out. But debt is not the same as wealth. Wealth cannot be borrowed it has to be produced.
Recessions are a neccessary part of economic cycles, without creative destruction one does not have a capitalist society....and we do not. QE has inhibited the other half of capitalism, the destructive regeneration half. In place, we have a crony society where CEO's, the super rich, the bankers and lobby controlled politicians blatantly line their (and their familes) pockets at the expense of the rest of society. If we look at the US as one of the most extreme examples, the political ruling class doesn't even bother trying to hide that they are fleecing everyone (see the the scandal surrounding Trump and his family dealings with Russia, they knew they would be found out, but just don't care). There are so many scandals that we have all become utterly desensitized to them, which adds to the growing feeling of helplessness. And that's because no one feels like they can do anything anymore, it does not matter who you vote for and it does not matter where you put your savings.....they will take from you at will.
Of course one thing you can always do is smash their faces in.
QE has magnified these imbalances, and distorted the economy beyond all measure. How can you look at a world with negative interest rates and say the process has worked? How does a negative interest rate work? How can it be that people are being take money?! This is not a sign of a functioning credit system. The yields on European corporate junk were briefly below the yield on the US 10 year!! Italian junk, yields less then US bonds! You are telling me that it is less risky to loan money to a company, then it is to loan it to a country, that has the reserve currency and can print as much of it as it wants?! Really you can say that and keep a straight face? How can you say that QE has worked? A distortion is not the same as a solution.
It seems everyone has forgotten that credit is future earnings, spent now. If we generate exceptional amounts of credit through QE we need exceptional amounts of growth to pay for it. 9 years on, where is this growth? It hasn't happened in Japan with 160% debt as a percentage of GDP, 30 years on from it's crash. And 100% of GDP is the widely cited level at which you can't pay the debt back anymore.
The frustration will build and eventually there will be blood on the streets. These things always end the same. Eventually the average person will run out of the cake they never had in the first place. And when they realize that, and they couple that with the creeping helplessness they have felt for years, they will be very, very angry.
As always, capitalism does not fail, communism does not fail, democracy does not fail. People fail. This time is not different because people are not different.

"Wealth cannot be borrowed it has to be produced."

Yet property speculators that produce nothing have been enabled to take wealth away from savers.

How do rising property prices take wealth AWAY from savers? I’m a saver and no one took any wealth away from me except for the rate of return post QE.

Surely you can understand that the current monetary system has encouraged very irresponsible gambling via over leveraged borrowing. Furthermore, I did not relate my comment to rising property prices; however, that IS a result of those speculators that gambled on future price gains in housing. Younger cohorts could not save fast enough to match the insane price increases, so it is a FACT that they suffered and still suffer financially. How much of this inequality can be laid at the feet of your ilk?

Didge likes to blame everyone else, especially property owners for all the ills of the world

A response one expects from the evil guilty.

Yes the governments of the world are saying "You savers are losers. You sensible borrowers, here have some more money".

J.C. Christine Lagarde is not a "he", she's a "she"


Govt change in NZ will be the biggest factor. They have several policys that represent significant change vs that of the last two governtments. A long time. Loss fencing, who can buy, and more focus on taxing flipping are all having policy changes.

I guess its not the policy change, its going to be how effectively they implement and police it. Outcome... role your dice.

From the venerable Bob Jones:

The financial advice columns aimed at Joe Citizen in our newspapers have common themes, a standard one being the desirability of regular saving. But I’d venture at least half of households have no income surplus for saving and most of the rest have a relatively meaningless ability.

.....That said, feel for them: they have an impossible job. For example, they can’t rely on fixed-interest investments, as rates – spawned by America’s depression-averting quantative easing – are at such historically low levels to be pointless. Again, history and common sense say this won’t last, and as interest rates inevitably return to historic norms, debt will incur large capital losses.

So what should mum-and-dad investors do for their retirement? For homeowners in Auckland, Wellington, Hamilton, Tauranga and arguably Christchurch, take the wisest approach to the one life you have and adopt the elementary wisdom of Epicurus. Ignore the often self-serving condemnation of fund managers and the well-meaning puritanical scolding of Don Brash and other commentators and put your spare cash into your home. It will bring you pleasure as you constantly upgrade while raising a family and will prove the best investment proposition, so long as the people inflow continues, which it will.

As you approach retirement – and as has always been done – sell up and downsize, either to a city apartment or the likes of Nelson. That will leave a cash surplus more than would been have achieved through enduring a spartan life-style through saving. Only then should investment arise as an issue.

JC... Wonderful article by Bob Jones... thks for sharing.

For example, they can’t rely on fixed-interest investments, as rates – spawned by America’s depression-averting quantative easing – are at such historically low levels to be pointless. Again, history and common sense say this won’t last, and as interest rates inevitably return to historic norms, debt will incur large capital losses.

I do agree..

So far I'm not overly impressed with this 1st article above which basically says sales volumes have been low in 2017 and forecasting is an inexact science

There's going to be a negative growth rate, probably most similar to the 2000 to 2003 [time period] when prices fell...

Ah yes...Negative Growth. How can Growth be negative?

More Negative Growth! "The big four banks are set to thin the ranks of full-time employees by 20,000 in 2018 and beyond as earnings growth slows and costs become harder to control. The solution is automation with digitised functions producing new opportunities for savings and headcount reduction."

No Surprises there. Everyone is well aware that Sydney prices have been falling for a while and 10% in 2018 and into 2019 are most peoples thoughts. Auckland will do the same if not more.

Bit more complicated. Past is not a guide to future. Housing stock is not owner occupied stock. Ageing pop dominated ownership. Ownership in long term decline. China bond market threat. Labour policy effect? All ignored. Plus Fed raising rates etc