Westpac economists say the slump in house sales volumes during the past two months is a “strong signal” that prices are about to cool.
Latest Real Estate Institute figures showed that while the median price surged to a new high of $425,000 in November, the number of sales was down 6.6% compared with November 2012.
Westpac chief economist Dominick Stephens said that on a seasonally-adjusted basis, house sales fell 6% in November. He said that combined with October’s decline, housing market turnover had now fallen 10% in the past two months.
In the latest edition of Westpac’s Home Truths monthly housing update, Stephens said “the fact is”, house sales bear a tight relationship with house price inflation (see chart below).
“Prices may be rising strongly right now, but the drop in house sales is a strong signal that prices are about to cool. We expect the rate of house price inflation will start slowing from early-2014.”
As noted yesterday, the latest home loan approvals data from the RBNZ revealed an ongoing weakening of mortgage demand, with year-on-year growth in the number of approvals falling by 9.4%: the lowest rate of growth since February 2011 (see next chart). This also suggests that price growth should slow considerably in the months ahead.
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The RBNZ’s caps to high loan-to-value ratio mortgage lending appear to be having the desired effect.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
