Over the last few years the number of house sales has dropped considerably from the level we saw during the property boom of 2003 to 2007. That should mean that people are now holding onto their properties for longer rather than selling.
One way to look at that is to measure the average number of years that houses have been owned based on the sales each year. In other words, for all the sales that occurred in say 2004, we can measure how long since each property last sold, then take an average of that.
The chart below shows the average number of years since houses last sold for each year since 2000.
The property market boomed from 2003 to 2007, during which time the number of sales increased considerably. First home buyers and property investors were active in the market, as well as people trading properties both up and down. In 2008 the global financial crisis hit New Zealand and the number of house sales dropped dramatically. Numbers stayed low and it wasn’t until early this year that things began to pick up again. During 2008 to 2011 investors were much less active in the market, first home buyers were largely absent, and many home owners held tight or renovated rather than selling and buying. It isn’t surprising therefore that the average number of years houses had been owned has steadily increased since 2007 and is currently at a higher level than any other year since 2000.
Looking a little closer at the data, we can measure the percentage of sales in each year where the houses had been owned for less than two years and compare that to the percentage of sales of houses that had been owned five to ten years.
The chart below shows how the makeup of sales has changed over time. During the boom years of 2003 to 2007 around one quarter of all the sales in each of those years were properties owned for less than two years. Since 2007 that proportion of properties held for a short time has dropped to between 10% to 15% of sales, while the proportion of homes owned for five to 10 years has grown to the point that it is now the highest it has been any time since 2000.
Comparing the three years 2002, 2007 and 2012 in some detail, the difference in the makeup of sales in each year can be clearly seen.
In 2002, just prior to the previous boom, there was a reasonably even spread of houses owned between 0 and 7 years, with each contributing around 7 to 8%. In 2007, the last year of the property boom, the mix of sales had clearly shifted to houses owned for fewer years. Those less than four years old each made up over 10% of sales, and overall, sales of properties less than four years old made up 48% of all sales in 2007. This indicates that properties bought earlier in the boom were already being re-sold with investors and owner-occupiers taking advantage of the rapid capital gains.
In contrast, sales so far this year have been dominated by properties owned between five and 10 years. This makes up one third of all sales compared to 17% in 2007. The lower proportion of sales of houses owned for two years or less can also clearly be seen.
Both of these trends make sense. The large number of properties bought during the boom years have now been owned for five to nine years and owners will be looking to either trade up or down again given that market conditions have improved. Likewise, in this market some owners with investment properties or second houses will be looking to sell also.
The low number of properties owned for less than two years that have sold suggests that we have seen relatively little capital gain since 2007. People simply haven’t been buying properties with short term capital gains in mind. Now that house values have begun to increase rapidly again, especially in Auckland, an increase in sales of properties held for a short time may eventuate again.