Median housing price makes a spurious bounce back

NZ median housing price makes a spurious bounce back to NZ$350,000

Looking through the spurious bounce in the median house price - which jumped from NZ$345,000 in July to NZ$350,000 in August - and the perpetually up-beat view delivered by 'impartial' real estate agents, the REINZ housing report for August was weak. The number of sales in August was just 6,394, compared to 8,556 a year earlier, and was the lowest number of sales for the month of August in seven years; this raises the question of just how reliable the median house price is. Furthermore, poor weather could no longer be blamed for the dramatic reduction in sales volumes - a case that could have been argued in June and July.

The most important snippet of information taken away from the REINZ report was, however, the rise in the number of days to sell. The 'days to sell' series is a strong indicator of the direction of house prices (chart). The average number of days to sell a house has been on the increase over the last six months and is now at 33 days (up for 31 in July). Although New Zealand's housing market has some inherent undersupply (see research note titled "NZ house price inflation a slow burn with lagging supply" GDW August 3 2007), waning demand is making it increasingly difficult to off-load what is on the market. Investors that would once have run around attempting to trump their competitors to snap up available listings have become much more subdued and uncertain about the housing market outlook.

JPMorgan maintains the view that New Zealand's housing market has indeed turned south in the winter and, under the weight of recent RBNZ tightening and a reduction in net-permanent migration, growth in house prices will gradually grind to a halt by 3Q 2008. The RBNZ will take comfort in today's report, and happily keep rates on hold this Thursday. The important feature of this week's MPS will be the extent to which the central bank discusses the recent financial market meltdown, and the impact/inclusion of its downside scenario for the 90 day interest track (the June MPS only included an upside scenario outside the central forecast).

ENDS

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