Property price trends: a new analysis

Properazzi

Alistair Helm

Alistair Helm

I recently examined property sales and listings data in order to measure the clearance rates in the property market as a means to better understand the signals within the market as to trending patterns.

In the same vein, I have now turned my attention to property prices as measured in the monthly median sales price by REINZ. This data set has a 25 year history, providing a rich period for analysis.

The graph depicting the past quarter of a century is probably well known and understood by those who follow the market.

Over these 25 years, the median price has with the exception of a few pauses and a single period of decline, edged inexorably upward from the starting level of $105,500 in 1992 (in today’s dollars: $175,500) right up to $550,000 at the end of 2017. That represents a 421% increase over the period, allowing for inflation that is a 213% increase – a more than trebling in median sales prices in 25 years.

Examining this chart can leave one with the misleading impression that that prices over recent years have experienced exponential growth. The reason being that a $50,000 rise in 2017 represents a 10% increase – highly visible on the chart, the same 10% rise in 1992 would amount to just $10,000 barely imperceptible on this axis, creating this impression that recent rises are more significant than a decade or two ago.

I've looked for patterns or trends in the path of median price over this protracted period and judge that the 25 years can be split up into 5 distinct periods as I have outlined on the chart, periods ranging from just over 4 years to 6 years.

RE_market_before_corrections_92_to_date_analysis.png

I have then separately charted each of these periods. For each distinct period I have deliberately created a Y axis that ranges from a minimum of 20% below the median price at the first month of the period; to a maximum range of 110% above the median price at the first month of the period. This has been undertaken so that each chart can be viewed comparatively with each other.

RE_market_before_corrections_92_to_date_analysis.png
RE_market_before_corrections_92_to_date_analysis.png
RE_market_before_corrections_92_to_date_analysis.png
RE_market_before_corrections_92_to_date_analysis.png
RE_market_before_corrections_92_to_date_analysis.png

The interpretation I draw from this analysis of the 5 periods of the NZ property market over the past 25 years based on sale price is that we experience cycles, no great surprise! We've had 3 periods of rises ranging in duration from 50 months to 70 months. Each rise has been followed by a plateau period equally lasting from 62 to 70 months. Within the second plateau period from Nov '07 to Jan '13 was the only significant period of falling prices. This decline lasted 23 months and at the lowest point prices fell 8%.

What is equally striking is the comparison of the three periods of property price inflation - the early 90's and the most recent 59 months both attaining a level of just under 50%, compare that with the staggering 102% rise leading up to the GFC over a period of 70 months. Certainly by this analysis the most recent 5 years have seen strong price inflated but nothing of the extreme seen in the early period of the new century.

For me this analysis proved the value in visualising price movements in terms of relative indexing as I have done with paralleled Y axis in each of the 5 periods. This got me thinking as to how to best represent this indexing in a histogram of property price movements. A bit of experimentation and trial and error has produced this new chart below.

RE_market_before_corrections_92_to_date_analysis.png

It is a binary chart where the criteria is relative 10 months performance against a base month. It seeks to highlight periods that have experience significant increases in property prices or periods where prices have stagnated or declined - picking out individual months.

By way of demonstration to show how the chart is developed, let me explain. So if as an example the median price in January 2002 is less than the average of the median price in the preceding 10 months then January 2002 is judged to be a month of weak sale price and a red bar is displayed. Similarly taking May 2015 if the median price in that month is greater than 5% above the average median price for the preceding 10 months then May 2015 is judged to a month of strong sales price and a blue bar is displayed. The decision surrounding the use of average rather than max or median; as well as the 10 month period as well as the 5% inflation criteria are purely experimental to deliver what I judge to be a valuable visual representation of the property price trends.

I rather like this representation as a visual cue as to the trend in the market highlighting periods of sustained growth, sustained weakness or variability between growth and weakness.

As to interpretation of this chart and the earlier charts as a guide to the future, I will leave that to you the reader as my role here is not to predict the path of property prices, merely to provide a lens through which to view and make your own judgement as you interpret the data.

Alistair Helm is the former chief executive of Realestate.co.nz and former head of product at Trade Me Property. He has just restarted his independent Properazzi blog after a three-year break.


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12 Comments & Questions

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Reminds me of that chap who famously predicted the Christchurch earthquake because it occurred on a day he calculated was of heightened probability. Then a TV program took a closer look at his results and it turned out that every second day was a day of heightened probability.

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If you overlay migration gains or losses and house mortgage interest rate declines over the period you may find further interactive influences.

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An issue with the histogram chart is that it masks the importance of months where prices have increased significantly more (i.e. far more than 5%) than the preceding 10 month median price... i.e. the first chart shows that the volatility / standard deviation has been greater from 2010 on-wards, compared to prior years.

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Looks remarkably like those stock market patterns that have proven to be as worthless as the predictions themselves

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Seven year property cycle doubling of house prices.
GFC 2008 end of the world said economists.

2015 house prices Doubled.

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Housing Investment versus NZ Shares in last 5 years.

GeoOp and a house in Otara.

Otara House price doubled and GeoOp NZ greatest tech company went from $4.40 to 20 cents.

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Housing Investment versus PushPay shares in last 3 years.

PPH, an actual tech company, shares went from 50 cents to $4.50, a 900% increase. Your house in Otara gained 50%.

Not everyone is absolutely abysmal at timing the market (or actually doing their homework) like you "Robert".

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Disingenious to compare the worst performing stock ...

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Don't forget the effect of gearing. The figures would make very much more interesting reading if you assumed a 10% or 20% deposit. What would the returns on originally equity invested then?

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The rise in house prices from the 90s on is all based on government lead immigration ....now that houses are up at the million dollar mark and the Asian banks are no longer lending, expect mortgagee sales.

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Won't happen until major job losses occur.

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Yes successive govt over immigration has been very detrimental to local youth.
The chart should underlay median wage rises over the period.
This difference is what really matters. 49% may look all well and nice on the graph from 2013 to 2017, but it is small comfort for a local whose median wages may have been lucky to have gone up 10k when house prices have gone up 180k in the same time.

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