Podcast: New Data Released: How The Property Market Performed During the Lockdown | Ep. 247

Posted by Ed McKnight on 18/05/20
How The Property Market Performed During the Lockdown 001
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Show Notes

What's Covered in the Show?

In this episode, we discuss how the property market performed during the Coronavirus-induced lockdown. This is based on data recently released by the Real Estate Institute of New Zealand.

As predicted, volumes massively dropped during April 2020, down just under 79% year on year. However that decrease is not spread evenly, Auckland's volumes, decreased just under 69% year on year. That is in part the reason why the median house price continued to rise to a record price of $680,000.

We also mention that we have our final weekly property investment webinar is happening this Tuesday at 7pm. This week Andrew will talk about how he manages his property investment portfolio, which at its peak had 38 properties within it.

Transcript

Transcript of the Podcast

Ed McKnight: Hello and welcome along to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and today on the show we're talking about the data that has just been released today or it'll be yesterday by the time we released this recording, by the Real Estate Institute of New Zealand.

Now this is fascinating because this data covers all of the properties that have settled in the month of April, which is the whole month that we were under lockdown. And so we've always, we've talked a lot on the show about, well, it'll be so interesting to see what, what actually happened during the lockdown.

And now we've got the data to be able to talk about it. And the big thing that we predicted was that volumes would decrease astronomically. And of course that's because you can't go out and look at homes and people aren't necessarily wanting to do something while they're under lockdown. And that seems to have been the case.

So volumes sold year on year for the month of April are down to 79%. So, last year, April, 2019 so just over 6,000 homes or properties were sold in the month of April.

That's down to just 1300 for the month just gone. Now you might think, actually that's not so bad given the fact that it was all under lockdown, but just remember that a lot of those property transactions will have been negotiated in March. So we have seen that massive decrease in volumes over that period.

But what is really interesting is that the median house price in New Zealand actually hit another record high, so it actually went up by $10,000 based on last month.

Last month it was 670,000 now it's 680,000 but I do want to talk about why you shouldn't necessarily read too much into that, but I mean, let's just acknowledge that that is significantly less volatile than we initially thought that it would be.

I was expecting to see a bit of a drop there, so you can be somewhat optimistic into it, but I do want to caution against reading too much into that, but before I explain exactly why I don't think we should read too much into it.

Andrew, why don't you just give us a summary over how some of the regions performed over the last month?

Who had the biggest increases in price? Who had the biggest decreases.

Andrew Nicol: Oh, let's look at Hawkes Bay, first of all. So this is massive up 39.4% from last year and hitting its new record of now $648,000 for Hawkes Bay.

Wellington also hit a new record at $730,000 and that's up 18.3% on last year.

Nelson up a whopping 22.8% from last year to $660,000.

And, Auckland not a new record, but up 9.2% on last year, $925,000 9.2% in a year. And then in terms of some of the ones that were, less performing , Otago down 12.1%, to $400,000. And then the Waikato, down 3.6% down to $530,000.

Ed McKnight: And there are some things that I do want to mention about this in particular, just talking about that New Zealand house median house price up 17% on this time last year up to $680,000.

The reason I don't think you should read too much into this, or at least not if you're taking this as an indication of what your property is necessarily worth, because remember, the way that this data is calculated, is it is based on what actually sold in the month of April, and remember that the properties sold in the month of March are obviously different to those that sold in April.

And so because there are movements and different properties were sold, you've got to take it with a little bit of a grain of salt.

Now, why am I saying that? It's because while volumes decreased by about 79% as I said nationally, in Auckland where house prices are much more expensive, volume only dropped by 69% so 10 percentage points less.

So what does that mean? It means that as a proportion, Auckland houses are making up a greater proportion of the properties that were actually sold than previously, and because Auckland houses tend to be more expensive, that means that, that greater proportion of houses being sold from Auckland are pulling up that national median it's almost artificially inflating it, if I can use that term.

Now, of course the median is accurate. I'm not saying that the median New Zealand house price, by the way it is measured, has not gone up.

It has, but what I'm saying is just be very careful about using that as an indication of what your properties are necessarily worth because I don't believe that the median New Zealand, everyone individual house price has gone up by 17% over the last year. And that's what I just need you to be really careful about.

And just to give some indication of this, REINZ do release a distribution of the price of property sold.

So, in April, 2019, about 14% of the properties sold were priced above $1 million this month it's 22% so previously 14% of houses were a million dollars plus now 22% so it's gone up significantly.

Why? Because more of the properties sold are in Auckland, which tend to be more expensive, and that's pulling that price up. It's pulling the median New Zealand house price up, but it doesn't mean that your house price has necessarily gone up.

Similarly, houses or properties that are priced between 750 K and a million has gone up from 16% to 21% whereas the proportion of properties sold at those lower prices has gone down significantly.

So, back in April, 2019 to 39% of properties sold were under 500 K. Now that's just down to 30%. So a drop of nine percentage points. So that's where you can see, hey, look, if these numbers were pretty consistent, we'd say, hey, house prices are really rocketing.

But what this is kind of suggesting is, well, different properties are being sold, so you can't necessarily take it as an indicator of what your property is actually worth.

Now the other thing that I want to mention is I do want to defend Otago for a second based on, of course it has had that about 12.1% drop.

But what's important to note as well is that the volume has decreased just astronomically over that time. So if I just flick to where that is, I can tell you that Queenstown lakes district, the median house price dropped by $60,000, between April, 2019 and 2020.

But similarly, volumes dropped from 63 properties this time last year and 64 in March, 2020 down to just seven in April at 2020 so the volumes have dropped so significantly that you can't really get a good reading on what, on how the market is actually operating.

It's just not a like for like comparison. And so Bindi Norwell, the CEO, the chief exec of the Real Estate Institute of New Zealand has kind of said, hey, look, there is some encouraging data.

There's some worrying signs in some regions, but it is going to take a couple of months worth of data to get a sense of how Covid is really impacting the New Zealand property market.

And she's absolutely right to suggest that. And I just want to point out two more stats that I think are really telling. We've often said that when times get tough and the property market gets rocky, people just don't sell their houses. They don't list their houses. And we do know that up to this point, a lot of New Zealanders are not selling their houses and haven't been.

The number of listings has been right down. Well, what's interesting is year on year, there are 29.3% fewer houses on the market in April, 2020 than April, 2019.

So, this time last year, there were 27,858 houses on the market. That's drop to 19,702 so about 8,000 fewer properties are now on the market. Because the supply of properties on the market has decreased by 30% that's going to help keep house prices relatively buoyant, and don't forget as well that just because somebody's listed their house on the market doesn't necessarily mean they're going to accept an insultingly low offer or very, low house price, and that drop in the number of listings or inventory as it's known.

And I know I sometimes say that word wrong, so I'm sorry if I messed it up, Andrew, but I know that in Marlborough and Taranaki the number of houses on the market has dropped by over 40%, so Marlborough 43% fewer listings Taranaki about 42% fewer listings. And so you can see, look even if demand for properties drops by say 40%, house prices are still going to stay relatively buoyant.

And what we do know is that there are. A lot more investors and there are a lot more first home buyers looking in the market at the moment.

We know that from Tony Alexander's most recent real estate agent survey, which we'll talk about more in a future episode, but we do know that those buyer segments are active and they are particularly active in the low to medium range of houses.

So we will see demand stay there, and I don't predict that we'll see any substantial decreases or prolonged decreases in house prices.

But what I would predict is that I am expecting the number of days to sell by the time we get the data for next, for May, 2020, by the time that's released, which will be about the 15th of June, I predict that we will see the days to sell massively increasing around the country.

At the moment, it sits at about 34 I believe is the average number of days to sell a property in New Zealand. That will likely increase significantly.

Why? Because there will have been properties that just sat on the market while we were all in lockdown. And so there'll be an extra 30 days or so for to which they won't have sold.

So we probably will start to see that stat increase over the next month when that data is actually released.

But look, just to summarise this monthly report from the Real Estate Institute of New Zealand, not as volatile as we would have necessarily predicted. There's some good stuff you could read into it.

I believe that Auckland with house prices still at their second highest they've ever been up from 900,000 in March, 2017 but down from last month by about 25 K. I think that's a really positive sign and we can read that there is some health and some heat in that Auckland market.

Some of the big jumps that we've seen in some of the other regions like Hawke's Bay and down at Otago, it's a bit more of an aberration just because the volumes are so low. So a bit less to read into that.

So, hey, let's wrap it up there, but please don't forget to rate, review and subscribe to the podcast. It really does help us get the message out to more people.

And we have our final weekly webinar this Tuesday at 7:00 PM I say it's final weekly because this will be the last time we do it every week. We will be dropping that back to monthly sessions though, and we will continue doing that.

So if you're keen to come to this one, Andrew's going to talk about what he's learned from owning 38 investment properties and how he manages to track it all.

Keep his hand over it and figure out what's performing and what's not. So I'm going to drop a link to that in the show notes. So tap or swipe over that cover art, it'll take you right there or just head along to opespartners.co.nz and you can sign up.

Thanks for listening to the Property Academy podcast. I'm your host Ed McKnight, and I'm Andrew Nicol, and we're going to be back again tomorrow with even more daily strategies, tactics, and insights to help you get the most out of the New Zealand property market.

Until next time.