Wellington Market Report - Valgroup Bulletin

ValGroup Bulletin

In this issue:

Autumn 2010

Property: Be Assured, Get Insured
Wellington - Market Report
What's a Builder's Guarantee Worth?
New Building Process and Completion Reports
New Zealand Property Commentary

Wellington - Market Report

Low sales numbers is the most striking feature of the market for the start of 2010. The level is about the same as January 2009 which is when the extent of the financial crisis had been exposed. Listings have increased slightly but median prices are declining. This continues the trends we noticed in November and December 09, suggesting the 2009 surge in the market is now easing off.

The Real Estate Institute’s (REINZ) comments on their statistics notes that there is a surge in listings so far this month. This confirms the changes we have noticed. We also note that selling times have returned to normal and tend to be increasing, suggesting easing demand.

This could be an effect of the Real Estate Agents Act 2008 that since November 2009 makes agents provide a fair market price and makes them more accountable to market the property at this price. However we believe it is a natural cycle and more to do with population and the effects of the economy starting to have an effect on property.

Like all markets, property is cyclical and given the 2009 increase we are now looking at a period of adjustment. The present strong price increase should be easing off in the early part of 2010. Later in the year we expect more even conditions with minimal growth in prices for at least a year.

Finance availability has a significant influence on the property market. The world financial crisis had a major impact on the market and this is by no means over. Government assistance packages in the USA and other western countries as well as in NZ are coming to an end. This will reduce the supply of money available and will increase the cost. For property this will reduce demand and ease pressure on price.

The Reserve Bank has introduced new requirements for the trading banks which are increasing the cost of mortgages and thus affecting the property market. Banks are now more risk averse, making it difficult for some borrowers to raise funds especially for less saleable properties.
Increasing population is expected to offset the trends above. The graph opposite shows a very noticeable gain this year, the biggest since 2003.

The finance constraint will limit the effect of the extra demand in the short term but it will be an influence in the longer term particularly as the building industry all but stopped in 2008-9.

A shortage of new homes being built in Wellington should ensure persistent long term value increases across most sectors, but it is less certain which areas and what type of property will benefit.

Property values will not keep increasing indefinitely. Affordability eventually constrains what buyers can afford. In recent years property prices have increased more than salaries and the long term trend is for property prices to be some 20% above the long term average.

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