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February 22nd 2012

Cause For Concern?

Must have been a quiet week for news; seems to be that every hack and his brother have felt the need to bag real estate and undermine the vital function the industry plays in our economy. I see no way a general recovery can take place without a strengthening market, such a market is a reflection of the confidence and wellbeing of the nation and if the population doesn’t feel good enough to spend on houses, it doesn’t spend at all.

The business editor of the Sunday Herald advises potential sellers in Wellington to prepare for price falls as financially overburdened public servants try to sell rental property before they see their jobs go west; Alistair Helm sees weak prices as a result of increased numbers of homes listed for sale and so on and on and on. January saw 1421 sales, the highest since Jan 08 (1550) but that was also the lowest figure since 2001. Jan 02 was 2750, 03 saw 2832 sales, 04 saw 2739 and so on ending in 07 with 2468 sales.

Question.  Did homes fall in value when the market was listing and selling at twice the numbers it manages at present? Au contraire, prices romped away simply because there were more buyers with money they could, and were prepared to, spend than there were homes for them to buy. Within certain parameters that is utterly the case today in Auckland, it will surely become the case through the land. In Eastern beaches, the parameters are that the homes fall in the sub-$650k range, be presented at their best and be priced/marketed well.

Two properties recently offered by this company attracted up to 50 inspections and 6 offers to purchase  within a week of marketing; they sold for excellent prices to buyers who had all previously tried to purchase other properties, one couple had been involved in four previous multiple offer situations. (They came second this time too.) The economy is not buoyant, buyers are not in a state of reckless frenzy nor is a real estate ‘bubble’ in the making; truth is very simply that there are insufficient homes available for even the conservative demand and purchasing capacity we have today.

In the days of Helen, she observed that we had a housing shortage of some 18-19,000 homes, ( I recall that as being in 2004,5ish) and since that time we have seen a production shortfall of some 10,000+ houses per annum such that we are probably some 50-60,000 homes in deficit, see graphs below taken from our Sept. Quarterly Report;

It becomes evident that at current building levels the shortage will only become more acute and that it is likely to be a long time before supply exceeds demand even at these subdued levels. Note the steady increase in mortgage approvals, the banks have cash reserves at embarrassingly high levels and do need to get the money out and earning interest,

A real contributor to increased housing costs is going to be the constant rise in the materials and labour components of a home, particularly given the domestic demand with the rebuild of Christchurch and the organic growth in Auckland. Cost of land will not fall without serious systematic changes to the ways local government releases land for development and that is improbable in the median term. Council fees and imposts are headed skyward and now form a huge component of a new home price. That will not change for the better.

I expect falling prices some time never.

Eastern Beaches saw continuance of the solid if unspectacular performance displayed in 2011, given the situations in other parts of NZ and the world, fantastic really. Not huge volume of sales, listings as tight as ever I have experienced, otherwise fine and boding well for this year; hard to believe that March is almost upon us!

 As always, I am happy to chat about any matters real estate, the coffee is always on.

Star Real Estate Ltd MREINZ
Licensed Real Estate Agent
110 Ridge Road, Howick

p:  +64 9 534 5189
f:  +64 9 534 2382
e:  info@starproperty.co.nz
w: www.starproperty.co.nz

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