Median REINZ house price rises in November, but volumes drop

The Real Estate Institute of New Zealand has reported the median house price rose to NZ$337,500 in November from NZ$335,000 in October, but that volumes sold fell to 4,279 from 4,469 in October.

“Prices are stable in an unsurprisingly slow residential real estate market,” the REINZ said.

The median price is down 4.1% from the peak of NZ$352,000 a year ago.

REINZ President Mike Elford said the state of the global economy and the November 8 general election were factors for the lower volumes and flat prices, adding prices were holding.

“Not surprisingly, some people are taking a wait-and-see approach and it is normal for things to slow down during a general election,” Elford said

“People are also watching for the effect of the interest rate cuts to come into the equation. There are many people who are still locked into fixed rates so it may be a while before these benefits can be felt,” Elford said.

He said it was unfortunate first home buyers face stricter lending criteria from banks at a time when housing affordability is at its best levels in year.

The median number of days to sell fell to 44 days from 47 days in October, but remains above the 36 days seen in November a year ago.

“The message I am hearing frequently is that there continues to be strong demand for well priced stock,” Elford said.

What I think

I’m a bit surprised the median house price is holding up at the same time that volumes continue to fall. In the past there has been a strong correlation, albeit lagged, between volumes and prices dropping.

But it’s worth looking at the spread of houses being sold. It shows that in recent months the number of more expensive properties selling has been proportionately higher because often established second or third property buyers are the only ones with enough equity to afford to buy. This has the effect of skewing the median higher.

The number of properties worth less than NZ$400,000 fell to 2,719 or 63.5% of the total in November from 64.7% in October. Meanwhile, the properties worth more than NZ$600,000 rose to 12.3% in November from 11.3% in October.

We are sticking to our forecast that the REINZ median house price will fall 30% from its November 2007 peak levels over the following two years before taking another 8 years to recover to that peak. This is based on our view that affordability remains much worse than affordable levels. Time will tell.

It’s always interesting though to see the reasons put forward by the REINZ for why volumes and prices are down. In recent months we’ve had bad weather, the school holidays, the global economy, the election and now tighter bank lending criteria. We believe unsustainably high prices are the real reason.

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Posted: 12 Dec 2008