to the Valu in Review for June. The news this month has focused on two main aspects. The first is the slowing of the economy with many people saying we are half way to a technical recession with the release of figures showing the economy has shrunk in the first quarter of 2008. The second focus has been the slowing in the property market (with sales volume down and median days to sell up). As always please read, learn, enjoy ....

.... and happy investing (in the changing market)!
 

At the beginning of June the Reserve Bank of New Zealand ("RB") indicated it expected the annual inflation rate to reach 4.7% by the end of 2008. In March the RB had expected inflation to peak at 3.5%. The RB's target for inflation is between 1 - 3% in the medium term. Inflation will be the highest it's been in 18 years and has resulted from significant increases in the cost of fuel and food, with expectations of price and wage increases persisting. The RB is in a difficult position managing high inflation, with weak economic growth - resulting in stagflation. The RB is predicting nil economic growth this year and then a relatively long period of low economic growth. Unemployment is expected to increase from 3.6% to 6% in 2011.

The RB also acknowledged it would reduce the Official Cash Rate ("OCR") later this year - possibly twice. The reduction in the OCR was earlier than the RB had predicted. Some banks are predicting a reduction in the OCR as early as October.

Its last review on 5 June, the OCR was held at 8.25%.

Statistics New Zealand has released a number of stats including the following
Building Work, seasonally adjusted and allowing for price changes, indicting a downturn in the construction sector.

	Dec Quarter (compared to previous quarter)	March Quarter (compared to previous quarter)
Value of Residential Building	-2%	-6.6%
Value of Non Residential Building	+12%	-5.9%
Value of All Building Work	+3.1%	-6.3%

Other factors contributing to the reported "gloomy" outlook for the economy include:
- Consumer confidence at it's lowest levels - similar to 1991.
- Further finance companies experiencing difficulties.
- The March year current account deficit at $13.8b, with at least one economist commenting it as being "worryingly high". The current account is the difference between what NZ spends and earns overseas and includes trade in goods and services, investment income (both ways) and net transfers.
- The number of people employed in the finance and business sector has decreased (this includes the property industry - real estate agents).
- The economy shrank by 0.3% for the quarter ended March 2008.
- A trade deficit of $196m for May (was expected to be a surplus of around $200m).
- Household consumption spending fell 0.4% in the quarter ended March. This was the first drop in consumption since the quarter ended June 2004. This is on top of the drop in spending on durable items (such as vehicles, major appliances and furniture) of 3.4% for the quarter.
 

Figures provided by the Real Estate Institute of New Zealand for dwellings for the month ended May 2008.

	May 2006	May 2007	April 2008	May 2008
Median Price	$305,000	$350,000	$345,000	$345,000
Total Sales	9,642	9,285	4,464	4,373
Median Days to Sell	38	30	44	49

- Nationally sales were down over 50% compared to last year
- Eight of the twelve Institute sales regions recorded reduced median prices.
- The biggest fall in the median house price, when compared to May 2007, was Northland (6%).
- The largest increase in the median house price, when compared to May 2007, was Southland (13%).
- It is believed that the median house price is "skewed" when individual sales are analysed. Compared to May 2007 there are 61% less sales in the value of house under $400,000 and only a decrease of 28.5% in sales over $1m - indicating that, as a proportion, there are more houses being sold worth in excess of $1m which could be keeping the median sale price up.

The figures provided by a national valuation firm (based on the three months ending May 2008 compared to the same period last year) indicate that the median house price is $387,299. This is an increase of 2.4% over the past year. The figures for April show an increase (growth) over the year of 4.9%.

A number of commentators have noticed that:
- Where vendors are under no pressure to sell they are withdrawing the house from the market and are renting them instead.
- The slowing market was providing some good opportunities to those who were looking to buy - although buyers still seemed to be holding back.
- Buyers were not being pressured into make the buying decision. They were taking their time and researching the market.
- The number of houses listed for sale continues to grow.
- Appears to me a stand off between buyers and vendors - both trying to achieve the best price - but unprepared to make the first move.
 

The listings for mortgagee sales has increased noticeably since Christmas. This trend has been noticed by real estate agents as well as websites with property listings. A rough estimate is about double the number of mortgagee sales listed at the start of June compared to December 2007.

While the numbers have roughly doubled the actual number of mortgagee sales are not considered significant. It is noted that often buyers do not get the bargain they were hoping for as the sale process is tightly controlled to ensure the best price is achieved for the mortgagor.

There were also a small number of industrial and commercial properties that were for sale as mortgagee sales.
 

For those looking to buy houses there is some good news - house affordability has improved. This is as a result of, stagnant houses prices and lower interest rates according to interest.co.nz. The index looks at the % an average house buyer has to spend of their take home pay, from a single median income, to afford the mortgage on a median priced house. The lower the number the more affordable the market is.

May 2002	46%
March 2007	78.6%
April 2008	82.2%
May 2008	80.6%

 

Towards the end of 2007 and up until now the rents had been increasing. However the latest research by Massey University shows that the median rent level has decreased by $5 per week. The median rent was now $295 per week. On an annual basis rents were 5.36% higher than May 2007.