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Philip Macalister
Philip Macalister
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Uncanny prediction for house prices

Wednesday 6th of October 2010
We’re into the next round of monthly house sales data with Barfoot and Thompson, yesterday, releasing stats on sales in Auckland.

The story seems to have a recurring theme to it. Prices good but volumes low.

I’ve been looking at the big question about where house prices maybe heading and was sent a set of slides from a presentation ANZ did recently. It has lots of regular themes in it, but also a couple of graphs which grabbed my attention.

The first is one we used a year ago which show house prices through their peaks. (Click on image below to see it).

The most recent housing boom lasted for 24 quarters and prices rose something like 80%-plus. The idea is that the bust time would be quite long and house prices would fall 20-25% from their peak.

At the time this graph was put together the falls had run for 12 quarters yet prices were down only 11%.

What’s fascinating is after they came off their peak they bounced again.

The message is that it seems that the housing market just want crash.

The ANZ economist Khoon Goh, behind these slides has also written about the affordability issue in the latest issue of the NZ Property Magazine. It’s worth reading, but in summary says although homes are becoming more affordable they are still on the expensive side. The way this is going to close up is that incomes will rise rather than prices come down.

The second graph is the one at the end of the presentation where two housing cycles were compared. The results are uncanny at how closely correlated they are. Click on the image to the left and see a bigger version of the graph.

I’ve put a red circle in to show the current time point. Assuming the trend continues we are likely to see house prices come back some more then rally and do so quite strongly.

The question is will this really happen?
Comments (1)
John Butt
The "sales per '000 households chart could be tempting to accept, but it has a fundamental flaw which combined with the situation, may make the comparison invalid; <br />The two lines have had their scales manipulated to arrange a match, since we only have a short period of the comparison, that suggests further manipulation by choice of time period. The scale change however may hide that the current price changes are more severe and dramatic than the 90's period. <br />With such a different reaction to the environment, that could be blamed on the cause of the cycle drop in sales - ie the financial market, but I believe the magnitude of the change, and hence the scale, is due to the major differences in the markets during these times. In 1990, property was not promoted on the internet, it is now the main method of promotion, in fact your site is the major player. <br />Better information enables a quicker response, ie the feedback loop is shorter and has more capacity, enabling a better informed market to react sooner and potentially with greater impact, hence the timing of the next change could be driven by information, not history.
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