What’s actually happening with the property market?

Wednesday, 17 January 2024

Another day, another chunk of property market data.

On Wednesday morning, Corelogic said the pace of increase in average house values was picking up. It said, after October's 0.4% increase and the 0.7% gain in November, December had a rise in property values of 1%.

But earlier in the week, QV said the pace of increase was slowing, with residential property values increasing by 0.6% through the December quarter. That was a slower rate of increase than the 2.3% reported in the three months to the end of November.

On Thursday, we can expect more data - this time from the Real Estate Institute. Last month, it said house prices were up 0.8% month-on-month.

So what’s really going on? And why are the numbers all different?

Gareth Kiernan, chief forecaster at Infometrics, said the various data points were showing different aspects of the overall picture, although there was some overlap.

He said Corelogic’s quarterly index which it provided to the Reserve Bank was the “gold standard”. “It uses the ‘sales price to appraisal ratio’ technique to measure the change in value for properties - if all houses sold for 5% above their RV last quarter and 10% above their RV this quarter, there would be a 5% increase in the index.”

Corelogic also has a monthly update, which Kiernan said largely had the same methodology but sales were allocated to a month based on when the sale was agreed.

This is the data that is sent to media and also reported over a rolling three-month period.

“I’ve previously looked at the relationship between Corelogic’s monthly and quarterly index, and the monthly index moves broadly in line with the quarterly index, but one-and-a-half to two months in advance. In other words, Corelogic’s monthly index for December essentially reflects prices for sales that occurred in about October.”

Corelogic chief property economist Kelvin Davidson said that was because it was a three-month rolling average.

Both Corelogic and QV use agreed sales data. QV said its data went through an algorithm to give an index reading.

Davidson said the reason the QV and Corelogic data was different could come down to timing.

“If you look at their annual change for 2023 (-4.2%), it’s not so far off our number of -3.3%. A 12-month horizon tends to smooth the variability.”

Kiernan said he did not use Corelogic as the most timely indicator of house prices any more because the Real Estate Institute had started putting out a house price index based on sales that had gone unconditional, as well as its information on median sales.

“It provides the most timely indicator of changes in house price trends, and is stable enough at a nationwide level to provide reliable movements on a month-to-month basis.

“More stable or reliable indicators of movements for smaller regions, cities, or districts can be achieved by the user averaging over three months, similar to what CoreLogic does with its monthly index.

“The index doesn’t include sales not conducted by a real estate agent – private sales and some sales of new homes by developers. I’m not sure what proportion of sales this might be, but I think it’s relatively low.”

He said the Real Estate Institute data on median sales prices was of little use when trying to understand house price changes because it could be affected by the type of houses selling. Last month, the data showed national median prices broadly flat.

“Their main use is giving you a guide of the relative prices of housing between different locations – but even then, CoreLogic’s average property value estimates published alongside its monthly estimates are more useful because they are not reliant on the sales that took place in any given month.”

Trade Me’s house price data is based on asking price, as is Realestate.co.nz - so this just reflects what sellers want, rather than what they actually got. Trade Me recorded a 0.5% increase in national average asking price betweern October and November.

“Trade Me’s asking prices are of limited use apart from providing an early indication of how real estate agents and/or vendors are reading the market. Asking prices should probably also be viewed in tandem with sales prices as a sign of how much vendors are having to adjust their expectations to meet the market.”

So what does it all mean right now?

Kiernan said there was probably still some hesitancy in the market related to the election.

“I wouldn’t be surprised if there’s a bit less momentum in prices around the election/post-election. We haven’t got sales figures for December yet but certainly for November they stayed weaker. They were weaker in October and they stayed weaker. It could be that uncertainty about what could come out the other side of the election affecting the market still..”

He said the outlook for the market was still the same as it had been for the past three or six months.

“You potentially get more investors coming back into the market because of the change in regulation by Government although I don’t think that’s been timetabled yet.

“But that’s counterbalanced by the fact that housing remains very unaffordable. The other aspect is population growth and migration and what that does to demand.”

Davidson said all the data painted the same picture of the direction of the housing market.

“The market has definitely started to turn up, and all measures show that to differing degrees.

“Ultimately, like with any stats, it’s important users understand how they’re compiled and which series is most appropriate in which circumstance.

“For example, if you want to know the absolute current price in a particular area, you might use a median sale stat. But it’s not good for turning points or slightly longer trend work.”