September 2011 - More Sunshine, More Stock

Market Comment

As always at this time of the year activity in the market begins to increase with the traditional spring flush of property coming onto the market. Sales have been reasonably subdued for the past couple of months and it will be interesting to see how this affects the current balance we have in the marketplace.

Wellington Snapshot

QV’s Residential Price Index for August shows that property values in the Wellington region are 2.4% lower than the same time last year. Values in the region continue to decrease. Mr Pieter Geill of QV Valuations said; “Wellington is in a holding pattern. Despite some agents doing very well, the region is still slow with low sales volumes and cautious buyers. It appears that previous declining values are levelling off.

Looking Ahead- QBE LMI Residential Property Outlook

The New Zealand housing market has performed above expectations according to the QBE LMI New Zealand Residential Property Outlook released recently. Notwithstanding the current uncertainty in global markets, prices could grow by up to 6% per cent nationally over the coming year. The report, exclusively prepared by Infometrics for leading mortgage insurer QBE Lenders’ Mortage Insurance (QBE LMI), showed that low interest rates have helped keep house prices stable, with median house prices climbing 1.1% to $356,000 over the last twelve months.

Tax- Capital Gains

The Reserve Bank does not favour the kind of capital gains tax the Labour Party is proposing, saying it would only distort the property market further. What is more, the Reserve Bank makes it clear, in its submission to the Productivity Commission’s housing productivity inquiry, that it has "never taken a stance on the general merits or otherwise of capital gains taxes."

Of Interest

Recessions and debt crises are largely not affecting the top end of the global property market with Christie’s International Real Estate reporting that the world’s wealthy are still buying luxury property and mostly paying cash to do so. The organisation's International Luxury Residential Report, unveiled at its annual conference in London, shows that buyers’ optimism is slowly increasing with more than 7% of its agents and affiliates reporting an increase in activity in the first eight months of 2011 when compared with the same period last year.

Looking Back

Looking back to the beginning of 2000 we can see how the number of house sales nationwide has changed over time. After peaking at nearly 28,000 sales per quarter in 2003 the number of sales settled at around 22,000 until 2007. The global financial crisis of 2008 saw sales volumes drop dramatically to under 12,000 per quarter before a minor recovery in 2009. Sales then began dropping again in 2010 before recovering through until now. In the last complete quarter to the end of June 2011 the number of nationwide house sales was exactly half of the peak, and 26% below the average for the June quarter since 2000.

Home Affordability

The Reserve Bank's lowering of its interest rate forecasts has improved the outlook for home loan affordability through late 2011 and into 2012 as house prices remain stable in most cities and incomes edge higher.

Down on the Farm

Farm sales are the highest in nearly two years and the trend is rising, says the Real Estate Institute of New Zealand. In total 1003 farms were sold during the 12 months to August 2011 - the first time since October 2009 the annual tally had exceeded 1000 which indicated the underlying trend was rising, it said. Institute rural market spokesman Brian Peacocke said farmer returns remained solid with an expectation for commodity prices to hold or in some cases firm slightly as the season progressed.

Interest Rates

Floating mortgage rates are unlikely to rise this year after Reserve Bank governor Alan Bollard took his cue from deteriorating sentiment about the global economy and kept interest rates on hold, as expected. That's despite Bollard acknowledging the New Zealand economy is performing relatively well with domestic activity surprising on the upside. However, the updated forecasts in his Monetary Policy Statement suggest Bollard now won't start raising his official cash rate (OCR) from its current record low at 2.5% until March next year. He certainly made no mention of removing the "emergency" 50 basis point cut in the OCR made in March inresponse to the Christchurch earthquakes.