Winter is coming. And traditionally the colder months always have an impact on the housing market, most notably in terms of reduced sales numbers.
But unlike over in the US, where seasonal changes in house sales are large enough to have an impact on median house prices, the impact on house prices here in NZ is fairly limited.
The first chart shows the actual US median house price (blue line) and the seasonally adjusted median price (orange line), with peaks in June and troughs in January.
On average over the last five years, the June peaks have been 10.4% above the January lows. To avoid bias caused by prices rising over time this it calculated by comparing the peak price in each June with the average of the prices in the preceding and following Januarys.
NZ’s housing market also experiences distinct seasonal changes in dwelling sales with a trough in January (due to summer holidays) and peaks in November and March.
The second chart shows average monthly NZ dwelling sales, as reported by REINZ since 2010.
NZ sales in the winter months (June to September) have on average been 17% below the average of sales in the peak summer months, being March and November—much less of a difference than I expected based on feedback from real estate agents over the years
Even in colder parts of the country, like Otago and Southland, the seasonal variation in sales isn’t much greater than the national average. And the seasonal impact is only slightly less in Northland.
The third chart shows the actual house price index reported by REINZ for NZ, versus my measure of the seasonally adjusted house price index. The house price index is used for NZ rather than the median price because in the smaller NZ market the median price exhibits lots of monthly volatility as a result of changes in the composition of sales.
Unlike the US, where there is clear seasonal behaviour in prices, it is hard to see any significant seasonal behaviour in NZ. There is some as shown in the fourth chart, below.
The fourth chart shows some seasonal behaviour in NZ house prices with prices in January and over the winter months on average around 0.5% below average and prices in peak summer months being around 0.5% above average.
To put this in context, on a $1,000,000 property, that equates to a $5,000 difference (in either direction) in price.
To compare average prices by month is not the right way to test if NZ house prices have much seasonal behaviour. House prices have risen consistently over time so comparing prices in December with January prices, for example, will (in most years) just show the underlying rise.
To overcome this, I compared the HPI in December, for example, with the average HPI in the 13 months centred on December to hopefully remove bias caused by prices generally rising over time.
Unlike in the US, where selling at the peak in summer vs. the trough in winter has around a 10% impact on price - $100,000 on a $1,000,000 house – doing so in NZ has only around a 1% impact on price.
It's a similar story all over NZ with it being hard to see any clear signs of seasonal behaviour in the REINZ’s regional or city HPIs (charts not shown).
By Rodney Dickens, Managing Director, Strategic Risk Analysis Ltd www.sra.co.nz.