Property cycle indicator reveals market downturn

The Mike Pero Mortgages-Infometrics Property Cycle Indicator for the June quarter shows although house prices are still rising, the national housing market is in the second quarter of a strong downturn phase. “House prices are typically the last indicator to change direction in a downturn,” says Jeff Staniland, chief executive of Mike Pero Mortgages.

Thursday, August 10th 2006, 12:00AM

by The Landlord

The Property Cycle Indicator provides a number between minus-10 and plus-10 depending on the state of the market, with a value of -10 showing a strong downturn, while +10 shows a strong upturn in the housing market.

In the June quarter, the national Property Cycle Indicator fell to -7.35, down from -5.19 in the March quarter. The average property took between six and nine days longer to sell compared with a year earlier, which is the longest time in up to four years. Sales volumes were 1.9% lower for the June quarter compared with a year ago, although there were signs of improvement in May and June. House price inflation, after easing in the first quarter of the year, has stabilised at 11% per annum.

The slowdown in the housing market is occurring throughout New Zealand. Wellington is the only region where the Property Cycle Indicator is positive, while the Nelson/Marlborough market appears to have emerged from the worst of its downturn.

“The slowdown in the market is comparable to that observed in the second half of 2004,” says Staniland.

The signs are that high interest rates are expected to persist until at least March next year, as a result of high inflation.

“Fixed mortgage rates are rising too, which is likely to limit the number of buyers in the housing market in the coming few months,” he says.

“The market slowdown is already with us, but despite that prices are holding up very well as people simply wait longer for their property to sell, or perhaps decide not to sell at this time,” Staniland concludes.

Auckland is the weakest market in the country – along with Central Otago Lakes – with a Property Cycle Indicator of -9.3. Auckland also had one of the slowest rates of house price growth, at 7.8% per annum in the June quarter.

The Property Cycle Indicator for Wellington sits at +0.93, and it has now been the best performing market for the past four quarters. There are, however, early signs of a slow-down, with the average time taken for a sale increasing for the first time in 15 months.

With a Property Cycle Indicator of -6.67, Canterbury is slightly better than the national average. Sales growth returned to positive territory in the June quarter compared with a year earlier, but buyer demand remained soft, with houses taking, on average, 10 days longer to sell than a year ago. House price inflation has edged down to a three-year low of 10% per annum and is likely to continue slowing this year.

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