HOUSING MARKET UPDATE

19 August, 2010  HOUSING MARKET UPDATE - Tony Alexander

Housing Market Flat

The REINZ released their monthly data last week and there was nothing in there justifying a change in our market commentary or view. Activity is flat, buyers know they can pick and choose, sellers won’t discount to get a sale, places are sitting on the market longer than usual but not appallingly so, and prices are essentially flat.

In July there were only 4,411 dwellings sold around the country. This is the lowest July turnover on record and down 27% from a year ago. Turnover for the year to July was ahead 2.8% from the previous year at 63,701 units.

If turnover was low because buyers could not find the properties they want as someone else had already snapped them up then prices would be rising. If turnover was low because no-one really wanted to buy then prices would be falling. But while the average median price (index measure) fell 1.2% in July this followed a 0.6% rise in June, 1.4% fall in May, small 0.3% fall in April, but collective 2% rise over February and March.

On average over the past three months prices have edged down 1.1% after being flat in the three months to April and ahead 0.6% in the three months to January. We read that as flat with a small downward bias which in the whole scheme of things is a very good result. Unemployment remains above average, the net migration flow is turning downward sharply, and investors have lost the tax deductibility of depreciation.

In the month it took on average 45 days to sell a dwelling compared with 37 days a year ago. More importantly though sales in the month took 5.8 days longer than average for July versus 5.9 days in June, 4.9 days in May all the way back to about even in March. Properties are sitting on the market for longer, but as the following graph shows things are well away from 2008 levels.

DAYS TO SELL AND HOUSE PRICE INFLATION

All up things are weak with prices near static. Nothing new there. One final point. Just be aware that there is a downward bias to house sales data reported by REINZ at the moment because an uncertain proportion of those who used to report now are not doing so either because they don’t have to or because free stuff they got in exchange for reporting is no longer available. We believe the downward bias is small but don’t really know by how much. Note however that it will only be the turnover number that is affected not average sale price or days to sell.

Old Folk Will Stay Put

This comment I am just whacking in here to refer people to as the issue comes up in future years. There is a long-running assumption that as the population ages old folk will want to downsize their accommodation and shift into a nice modern low maintenance house or flat. I recall analysing the price difference between such places and average existing houses during a day spent in Westport 10-15 years ago waiting to fly back home after tramping further north. There was no price gain for pensioners in selling and then buying.

The issue however in these sort of things is what is the assumption one is making in the first place? It is that old folk will want to move. The truth however appears to be that they do not. A report referenced on page 9 of the August 18 “The Australian” newspaper this week shows that while 88% of people over 55 are living in houses bigger than they need, more than 90% believe their home is the right size for them. The same percentage want to stay in their home even as they increasingly need in-home care services. The report was put out by the Australian Housing and Urban Research Institute.

The relevance here is that as our population ages average occupancy per house will continue to decline as it has for quite some time now and that decline may even accelerate from next year. That implies that the number of houses needed to be built each year to meet normal accommodation requirements will drift up from next year.

Now throw in builders leaving for the green fields, eager employers and high pay rates in Queensland and Western Australia, rising construction costs courtesy of China’s domestic upgrading over the next few decades, and one easily gets extra underlying house support. Not short term of course but over the medium to long term.

All that means is yet another warning not to blindly base your house price expectations on measures of fair value based upon the structure of our economy and society over the past few decades. Structures change over time. Bigger houses on average, more inside toilets, more bathrooms all up, better insulation, stronger walls, and so on.

Find out more about The Thorne Group: Tauranga Expert Home Builders