“Real Estate Institute of NZ Applauded for Providing Regional Housing Supply Information”

HUGH PAVLETICH
DEMOGRAPHIA

The Real Estate Institute of New Zealand is to be congratulated for providing quality information on the supply / demand situation of existing housing stock, for the regions throughout New Zealand, within its media release Scoop: Significant Increase in No. of Homes for Sale .

The release provides information on the increase in housing sales inventory and expresses it also by illustrating how many months of supply this represents nationally and for each region.

This methodology is in common usage in many other countries – particularly in North America, as illustrated by the latest Monthly Report by the Houston Association of Realtors , accessible via the Index Page for the month of December 2007

The Houston Association of Realtors website is generally regarded as the global leader – with respect to the quality of the website and the high standard of information it provides.

Housing markets experiencing reasonable annual population growth of 1% and above are considered to be in a “state of equilibrium” with six months supply of sales inventory. At this point it is therefore considered neither a sellers nor a buyers market. As supply increases above the six months point, buyers are in the stronger negotiating position – and conversely – should supply fall below six months supply, sellers are in the stronger position.

The Houston Association of Realtors December 2007 Report, illustrates how existing housing stock inventory has moved from 5.0 months in December 2006 to 5.9 months supply in December 2007.

Because there are no impediments to constructing new housing supply around the fringes of Houston – the median single family home sales price over the twelve month period has moved from $150,000 to $153,360 – an increase of 2.4% over the twelve month period.

This is remarkable – when tightening lending standards have subdued the lower cost end of housing markets throughout the United States.

The price of apartments in Houston during this period fell 7.4% to $137,000, as reported in the Houston Association of Realtors December 2007 Monthly Report.

Because the New Zealand urban markets are strangled and starved of adequate fringe land supply, lot /. section prices are grossly inflated in price. The New Zealand housing market is therefore a speculative bubble market. Bubble markets are inherently volatile, unstable and destructive.

Generally – urban markets that exceed the “affordable” ceiling Median Multiple of 3.0 – as illustrated within the 2008 4th Ed Demographia International Housing Affordability Survey are highly susceptible to bubbles setting in. The seven major urban markets of New Zealand are currently at 6.3 times annual household earnings – and with Australia – the highest of the 227 urban markets of the 6 Anglo countries surveyed.

Scarcity precipitated bubble markets essentially get turbocharged through the upside, as the conventional commercial disciplines are discarded (the inflating prices supposedly protect everyone – so inflating asset based lending is the order of the day) and a speculative frenzy sets in – until they are exhausted or “pop”.

They do not start on the path to recovery until prices move substantially closer to affordable levels – as lending institutions “rediscover” the merits of income based / cash flow lending.

California is an excellent example of another “bubble market” nearly two years past its peak as outlined within parts of these articles - Scoop: Poor Analysis, Reporting of Urban Property Bubbles and Scoop: Housing Affordability – The Shift To Reality

The “months of supply” information provided within the Real Estate Institute Media Release, illustrates that nationally over the past twelve months, existing housing stock inventory for property listed with Real Estate members (considered 90% of the total market) increased substantially from 5.5 to 7.8 months supply. Many regions have experienced massive increases in supply.

The existing housing stock supply in New Zealand is increasing rapidly, as the new house building permit statistics are currently falling as illustrated by the latest release from Statistics New Zealand.

It is therefore likely now that new residential construction will begin to fall off dramatically from this point. New Zealand experienced this in the 1980’s and 1990’s, as waves of builders left these shores for better opportunities in Australia.

Hugh Pavletich
Co author – Annual Demographia International Housing Affordability Survey
www.demographia.com
Christchurch
New Zealand

ENDS