Take a deeper look into the statistics

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We are now midway through the year, and are we indeed starting to experience what we have been musing for some time now — that New Zealand may see “the tale of two cities” while the rest of the country continues to remain pretty flat for an extended period of time?

Some of you may recall that we have been predicting since last year that Auckland and Christchurch may well undergo growth much sooner than the rest of the country, given the housing pressures that appeared to be developing in Auckland and the obvious effects of housing shortages in Canterbury as a result of the earthquakes.
Recent data seems to be confirming this is happening. The May building consent statistics have, for about the third month running, shown Auckland and Canterbury as having the biggest increases and, while the rest of the regions are better than they were a year ago, times are still tough — as you will all know.

Furthermore, Quotable Value (QV) and the Real Estate Institute of New Zealand (REINZ) recently published information on average house prices and the volume of housing transactions.
With new homes forming about 20% of all house sales, existing homes are new homes’ biggest competition. Both the QV and REINZ figures confirm that the national house price median is above the 2008 house price peak but, volume-wise, only about two thirds of what they were.
All good stuff on the surface and a confidence booster. But if you analyse the data further, the only regions where that is so are Auckland and Canterbury.

For the rest of the country, house prices have not reached their 2008 highs (though they are not far off though), and the market prices are pretty flat.
Auckland and Canterbury volumes are high, so they have quite an influence on the national outcome. What did Benjamin Disraeli (or Mark Twain) say? “Lies, damned lies and statistics.”
So is this good or bad, and is the glass half full or half empty? Well, the good news is when property prices stabilise, confidence returns to the market as home owners and banks tend to be more willing to build new or buy existing, as they know equity will not be eroded. After all, why build new, or buy, knowing it will be worth less than when you started?

We hear anecdotally that new home buyers and investors are starting to reappear in Auckland again — not because they expect rapid capital gain but more that they are confident house prices will not fall. They also want to make the most of low interest rates and increasing rents.
On the other hand, do not expect a return to the “good old days” of 2001-2008, where house prices virtually doubled, any time soon. We do not anticipate anything of the sort, while some commentators are predicting that those days are gone forever — and forever is a long time.

The world has changed from what it was then, and an expectation the property market will return to those heady days (like, every time we see house prices rise we think “we are back”) is foolish.
 

The Governor of the Reserve Bank will also have something to say about that should he sense that is the case.
However, I think you can expect periods of short term growth as the supply/demand curve equalises from time to time in each region — but these will be short lived and inconsistent around the country, depending on local pressures.

On a positive note, it has never been a better time to build if you are a home owner. And if we do recover in a slow and consistent manner to, say, around 20,000 new homes a year, then we will be a much more stable industry than if we had to ramp up overnight, only to begin that boom/bust cycle that plagues the sector.
Christchurch’s rebuild will, no doubt, create that worry and pressure on labour. New home consents for the first five months of this year are 6463 (including apartments). When annualised, this indicates a figure of around 15,500 to 16,000 for 2012 which, while still way too low, will result in the highest consent figures since 2008.