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(Slightly) encouraging news on the home sales front ...


The a.


news on the residential property market continues to show a slowly improving


trend in terms of prices and volumes. Since 2007, there have been 4 long years of


decreasing prices and volumes of sales in the housing market, as well as a residential building sector in decline. Now, however, there are glimmers of hope appearing amid the murk.


According to a report in the Herald on 14 July, real estate agencies are reporting more first- home buyers are in the market for a home. This is the fourth month in a row that increasing interest has been shown from this sector of the market and therefore it looks as though a medium to longer term trend is emerging.


b.


Tony Alexander, Chief Economist at the BNZ , in his June Real Estate Overview has noted that prices too are on the move – though again only slightly. In the main population centres, Auckland is leading the way with the central areas particularly showing an increase in sale prices. Inevitably, this will flow through to other Auckland suburbs.


c.


The GDP figures for the March quarter 2011 (Q1) were double economists’ projections, at 0.8% and that, together with a revised figure for the December 2010 quarter, at 0.5%, means that there is now a trend being established in this area.


d.


Manufacturing activity is also increasing at a rate greater than first thought with sales up 9.7% in value and 2.0% in volume (indicating higher prices are being achieved).


e.


The most recent of the ANZ Job vacancy adverts. statistics are also showing that there are signs of life in the employment market, with a 2% increase over May 2011 and a massive 37% increase in the level of Job advertisements since the start of 2011.


This good news however, is interspersed with


other news about the economy not seeming to have improved, despite the official figures to the contrary.


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I think that the main reasons are as follows: The effect of the increase in GST on prices across-


the-board is hitting people in the pocket, despite tax relief designed to mitigate it. Inflation statistics for the previous 12 months still include this additional 2 ½% but this will drop out of the figures after October 2011 and inflation should start to drop.


The unemployment level remains fairly static and


seems to belie the increasing industrial production. However, as I commented some months ago, the normal trend is for any business to use existing labour capacity before taking on new workers. In many cases, businesses have been carrying more staff than they needed just to ensure that they had key and trained staff available, for when business started improving.


... any recovery for prices


and volumes of house sales will be slow and steady ...


Only when there is full


utilisation of existing staff, will firms start to employ greater numbers of workers, which will then bring down those persistent unemployment


figures and only when firms are unable to attract suitable workers for a particular task, will wages and salaries start to rise more than the average over the last few years.


Finally, there is ongoing debt reduction occurring


in many households which, while very good in the medium to long term, means that in the short- term, consumers are not spending on day-to-day purchases.


Taking all the above into account suggests to me


that any recovery for prices and volumes of house sales will be slow and steady over possibly the next six months or so. Suggested imminent upward changes in the Official Cash Rate, may spur a little more activity, but I do not consider that there will be any great effect from that.


Bill Glover


For archive copies of these monthly articles, go to www.gloverrealestate.co.nz and click on ‘home truths’ and then ‘home truths – back issues’.


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