Property market continues to soften
11 April 2008
Embargoed to 11.59pm Sunday, 13 April 2008
Property market continues to soften
QV's March statistics for the residential property market report a 6.5% growth in national property values over the past year (calculated over the three months ending March 2008 in comparison to the same period last year), down on the 7.7% growth reported in February. The average New Zealand sale price decreased to $388,894 this month (from $393,240 last month).
"The market is continuing to soften, with more listings and fewer buyers leading to reduced demand. While some properties or localities are selling below previous expectations, other areas continue to hold up well" said QV spokesperson Blue Hancock. "Market sentiment continues to be negative and as we head into the winter months this is likely to continue."
"The drop in average sale price this month is a reflection of more activity at the bottom end of the market, and less at the top end, rather than any significant drop in value. Many investors may be seeking to reduce their exposure to increasing mortgage costs, and having made good capital gains over the last few years are now looking to sell" said Mr Hancock.
Annual growth rates continue to slow in most of the main urban centres. Dunedin and Hamilton are slowing the fastest, with growth rates easing to 2.2% and 3.4% respectively. Auckland City (6.2%), Wellington City (7.4%) and Christchurch (5.8%) all eased more slowly. Tauranga was the only main centre to show an increase, rising from 2.9% to 3.7%.
Most of the main provincial centres also showed slowing growth rates. Although Invercargill decreased by a further 2.7% from February, the year on year growth rate is still 21.8%. Rotorua eased further to 5.8%, Palmerston North to 5.1%, Napier to 3.4%, Gisborne to 3.2%, Wanganui and New Plymouth both declined to 3.1%, and Taupo is now showing static growth of 0%. In contrast Queenstown's growth rate increased 1% to 6.2% reversing a series of declines in growth since November. Hastings also increased slightly to 3.7%.
Main Urban Areas Commentary:
Property values in the Auckland region increased by 7.1% over the past year (calculated over the three months ending March 2008 in comparison to the same period last year). The average sale price for the region decreased to $516,253 compared to $518,085 recorded last month.
"All seven cities and districts making up the Auckland region showed an easing in the year-on-year growth rates from March 2007 to March 2008. Year-on-year growth rates now range from 5.1% recorded for Papakura to the regional high of 9.8% in Rodney. Average sale prices varied on levels reported last month" said Glenda Whitehead of QV Valuations.
"Throughout the region, residential property is taking extended periods to sell, with 6 to 12 weeks not uncommon. Some buyers are making low offers to take advantage of those who need to sell. Vendors who are not desperate to sell are withdrawing their properties from the market, refinancing and renting them out instead. We are also seeing more price based marketing, as auctions struggle to get interest" said Whitehead.
"Auckland City’s annual growth rates eased to 6.2%, while the average sale price rose slightly to $595,942. Again listing levels are high, and it appears to be only the motivated vendors that are meeting the market. Negative media reports are helping create a stalling effect in the market, as participants take a wait-and-see approach. Banks are reporting limited levels of new lending, leading to some banks relaxing criteria to win business while others are tightening their criteria. A positive outcome amongst the more gloomy reports of the apartment market is that car parks are still in demand, with the price of a car park on a separate Title still around $60-65K in CBD" said Whitehead.
"On the North Shore, while the annual growth rate eased to 7.9% the average sale price rose to $604,469. This confirms word on the street that while property on the Shore is taking longer to sell, as a whole values appear to be holding" said Whitehead.
"Waitakere City, which has been a very steady market in recent times, saw its annual growth rate slip 1.5% to 7.9%. This rate is now at a similar level to February 2007. Our valuers report large numbers of listings, with low levels of interest at open homes, and discerning buyers. There is still a gap between vendor and buyer expectation, with only the realistic and motivated vendors successfully selling. There is very little activity from investors, with some now placing their properties back on the market as they struggle with the higher interest rates" said Whitehead.
"As is the case throughout the Auckland region, the South Auckland property market has also slowed down in recent months. Agents are reporting properties being listed for well over 6 weeks. Sales volumes in the lower priced suburbs such as Papatoetoe, Otara, and Manurewa are somewhat more buoyant than the traditionally more sought after suburbs like Pakuranga, Howick, Dannemora, and Highland Park" said Whitehead.
Property values in Hamilton increased by 3.4% over the past year (calculated over the three months ending March 2008 in comparison to the same period last year). The average sale price for the city was $359,668, down from $360,879 in February.
The continued decline in sales volumes, a good supply of properties on the market, the impact of increasing interest rates, and decreasing immigration continued to put downward pressure on residential property values in the city" said Richard Allen of QV Valuations.
"Hamilton’s residential property growth statistics for March continued to slide reaffirming the easing growth we have seen in the early part of 2008. The significant decrease in property value growth seen over the last couple of months continued, as did the decline in average sale prices recorded for most parts of the city.
"Annual property value growth for the whole city in March decreased to 3.4% from 6.1% in February. The Central City/North West area of Hamilton decreased to 2.7% from 4.5%, the South West to 3.4% from 5.5%, Hamilton North East to 3.3% from 6.6%, and South East Hamilton to 3.2% from 5.8%. The average sale price in the city decreased for the fourth consecutive month easing slightly from $360,879 to $359,668" said Mr Allen.
"With demand continuing to soften in most areas it will be interesting to see what impact the downward pressure will have on the average sale price in the next couple of months. At this stage expectations are that sale prices are likely to fall a little more before leveling out" said Mr Allen.
Tauranga’s residential property values increased by 3.7% over the past year (calculated over the three months ending March 2008 in comparison to the same period last year), up from the 2.9% reported last month. The average sale price in Tauranga increased slightly to $423,407.
"Tauranga was the only one of the main centres to show an increase in the year on year growth in values compared to last month. While the market is clearly subdued, it is too early to conclude that it is a buyers market. It is not the ideal time to sell, but nor is there evidence to suggest that it is an attractive environment for buyers either" said Shayne Donovan-Grammer of QV Valuations.
"Property stocks are building up quite rapidly as more properties are listed but few are selling. The build up should inevitably lead to a softening in prices, particularly for those sellers who have to move on" said Mr Donovan-Grammer.
"The apartment and quality townhouse markets in both Tauranga and Mount Maunganui have been particularly hard hit. In the apartment market there is such a dis-interest that a good portion of properties that have changed hands involve trades with other residential property. In the inner suburbs of Tauranga, in an area such as Pillans Point, a number of townhouses in the $600,000 to $900,000 category have been on the market for over a year, some approaching two years" said Mr Donovan-Grammer.
Property values in the Wellington region increased by 8.1% over the past year (calculated over the three months ending March 2008 in comparison to the same period last year), down from 10.0% reported last month. The average sale price for the region decreased from $457,530 last month to $440,483 this month.
"The year on year change in values is now at its lowest level in three years showing an increase of only 8.1%. More significantly, this has dropped from the high of 16.5% seen last August, and this downward trend is being confirmed by the dialog our valuers have with their daily contacts. If this trend continues then it is likely that parts of the region will show declining values before the end of the year" said Max Meyers of QV Valuations.
"All the areas within Wellington have shown easing annual growth rates and average sale prices. Across the region, Upper Hutt showed the greatest change in annual growth rates, dropping to 10.1% from 13.4%. Porirua also eased to 10.2% with average sale prices similar last month at $402,653. Kapiti eased to 10% and Hutt to 8.3%" said Mr Meyers.
"Within Wellington City, the Eastern Suburbs showed the greatest easing in annual growth rates, dropping to 5.5% from 8.0% reported last month. North Wellington eased to 7.9%, while both the Western suburbs and Wellington City and Southern Suburbs both eased to 7.7%" said Mr Meyers.
"Some areas and types of properties will be more affected by changing values than others. Well presented properties in good condition are holding their value well. The market is still reasonably active, but there are fewer transactions than last year and sellers have to be prepared to negotiate to achieve a sale" said Mr Meyers.
Property values increased by 5.8% in Christchurch over the last year (calculated over the three months ending March 2008 in comparison to the same period last year) down from 6.1% reported last month. The average sale price for the city improved slightly from February, being $365,665 in March.
"The softening of the housing market continues. The volume of sales is well down on previous levels and we are now seeing clear signs that some property types are achieving lower sale prices than they would have six months ago. The difficulty the property market is experiencing is well reported and it would appear that this negativity is adding to purchasers’ reluctance to commit to buying a property" said Mark Dow of QV Valuations.
"While the year on year sales price statistics don’t indicate any major issues with the market, it is the low sales volumes and recent ‘coal face’ information from agents and valuers that paint a picture of a market that will struggle over the winter months" said Mr Dow.
Dunedin’s residential property values increased by 2.2% over the past year (calculated over the three months ending March 2008 in comparison to the same period last year), down from 5.3% reported last month. The average sale price in Dunedin was $276,186.
"The downward trend in growth reported over recent months shows no sign of levelling out and there is nothing on the horizon that is likely to reverse this trend as we move into autumn and winter. The general economic outlook is not particularly positive and this is impacting on the property market just as it is with other investment markets" said David Paterson of QV Valuations.
"There has been anecdotal evidence of prices easing for some time now. This month's value growth statistics are also showing some negative growth in parts of the city for the first time. The growth in the southern city area for example was -1.4%. This is an indication of what we may see over the city as a whole in the months ahead. The other areas all still show positive growth on the same period in 2007" said Mr Paterson.
"There are large numbers of properties on the market at present. While houses are still selling, there appears to be insufficient demand to match supply" said Mr Paterson.
Residential Price Movement
Questions and Answers:
The following information is provided as background to the Residential Price Movement statistics.
1. What is the Residential Price Movement Report?
The Residential Price Movement Report is a new set of residential property statistics that provides an estimate of the change in residential property values over the previous 12 months for areas throughout New Zealand. Residential sales compiled by QV for the previous 3 months are compared to the same period of the previous year to identify the annual percentage change in residential property values. The residential sales included are for residential houses, apartments, flats, home and income properties, and houses converted to flats.
2. Why has the Residential Price Movement Report been developed?
The Residential Price Movement Report has been developed to provide a timely indicator of residential property value movement, using the latest residential sales data compiled by QV for the previous 3 month period.
QV has previously only released property statistics quarterly. QV’s measure of price movement has been the Quarterly House Price Index (QHPI). The QHPI only includes sales that have been notified to the Territorial Authority that sold within the quarter. As sales of properties can sometimes take 4-6 weeks to settle, the QHPI is released after an extended period to incorporate as much sales activity from the quarter, which results in increased statistical accuracy, but also a less timely output.
As the Residential Price Movement Report uses the sales compiled by QV over a 3 month period, rather than the sales that necessarily sold within that period, the Residential Price Movement Report can be released on a more frequent basis, providing a timelier indicator of property value movement. The Residential Price Movement Report also includes sales activity in other residential property sectors including apartments and flats.
3. How frequently will the Residential Price Movement Report be released?
The Residential Price Movement Report data will be available to the media on a monthly basis. It will be released to the media for publication on either the second or third Monday of each month.
4. How current is the Residential Price Movement data?
The data contained in the Residential Price Movement Report is based on the residential sales compiled by QV for the previous 3 month period.
For example, the Residential Price Movement Report as at January 2005 will include sales compiled by QV up until 31 January 2005 and include sales compiled since 1 November 2004.
5. Why does the Residential Price Movement Report include sales compiled by QV over a 3 month period?
Sales are included over a 3 month period rather than a single month to ensure that there are sufficient sales volumes to calculate statistically accurate property value growth.
6. How is the Residential Price Movement data calculated?
The Residential Price Movement Report includes two indicators of property value; the property value growth, and average sales prices.
The Property Value Growth uses QV’s House Price Index methodology, which generates a residential index for each area by recognising the sales price of each property sold compared to its capital value. This ensures the index provides a measure of change in property values, without fluctuations caused by higher sales volumes in one or more property sectors (e.g. high volumes of apartment sales or investment properties).
Residential sales compiled by QV for the previous 3 month period are compared to the sales compiled by QV for the same period the previous year to identify the annual percentage change in property values.
Average Sales Prices
The Average Sales Prices calculated in the Residential Price Movement Report are based on residential sales compiled by QV for the previous 3 month period.
7. Does property value growth reflect a change in average sales prices?
No. Property Value Growth does not reflect a change in average sales prices, which are only given to enable a comparison of sale prices for one month compared to the last. Property Value Growth uses QV’s House Price Index methodology to generate a residential index for each area by recognising the sales price of each property sold compared to its capital value.
8. Why does QV recommend using the Property Value Growth rather than Average Sales Prices to verify the change in property values over time?
Average Sales Prices are only provided in the Residential Price Movement Report as a broad indicator of property values in an area to assist comparisons between areas. QV recommends referring to the property value growth to verify change in property values over time, rather than the average sales price, as the average sales prices can be impacted by the types and categories of properties selling, or low volumes of property sales.
9. When was the Residential Price Movement Report first released?
The Residential Price Movement Report was first released for the period ending January 31 2005. The QV Quarterly House Price Index, which measures the movement of house values over time, is available back until 1989. QV is also able to produce statistics using its database going back to 1985 for most areas.
10. Why does the Residential Price Movement Report provide an ‘estimate of property value’ only?
Data in the Residential Price Movement Report provides estimates only of property value, and should not be considered ‘final’ statistics, as not all sales for the 3 month period will be included due to the time the data is released. This is because some sales within the 3 month period will not have been notified to the Territorial Authority in time for inclusion in the Residential Price Movement Report data. Notification of the sale to the Territorial Authority does not occur until after the sale has been settled and documents forwarded by the solicitor. This generally introduces a lag of 4 to 6 weeks before the Territorial Authority records the sale.
QV produces final property statistics which are released after an extended period to incorporate a greater level of sales activity, resulting in a more statistically accurate output. Final property statistics, including the QV Quarterly House Price Index, can be purchased online at www.qv.co.nz.
11. Why do some Territorial Authorities show ‘N/A’ (Not Available)?
Territorial authorities may show ‘N/A’ if there is insufficient data available at the time of publication to produce statistically accurate outputs. This may occur when there has been very low sales activity in an area, or alternatively when QV has not been supplied sufficient residential sales volumes by a Territorial Authority for a particular period.
12. Why does QV caution against using statistics with low volumes of sales?
Statistics based on low sales volumes should be used with caution, as low volumes of sales are insufficient to create statistically accurate outputs. Any statistics calculated based on sales volumes of less than 50 sales appear in Italics in the Residential Price Movement Report data.
13. How are the regions and city areas defined?
Property Value Growth statistics are provided for each council area throughout New Zealand. Five main urban areas (Auckland, Hamilton, Wellington, Christchurch, and Dunedin) also have property value growth statistics available for areas within the cities. These city areas have been defined through consultation with QV Valuers that have local knowledge of each area.
Property Value Growth Statistics are not provided for individual suburbs, as most suburbs have insufficient sales volumes to ensure statistically accurate property value growth calculations.
14. Where does QV source the property data?
QV maintains a national database on Property Information that it creates by sourcing updates of the District Valuation Roll from all NZ Territorial Local Authorities/councils.