A common assumption doing the rounds in the property market is that an area where houses are turning over slowly (or quickly) will be seeing weak (or strong) value growth.
Indeed, there is some tendency for slower moving areas to see slower value growth but it’s far from a universal truth. Why? Because vendors’ behaviour matters just as much as what prospective buyers are doing.
Generally speaking, the data backs this up: the areas that have experienced stronger value growth over the past year have had higher turnover rates.
However, there are still several exceptions to the rule: so much so that it’s a loose rule at best. For example, 7.1 percent of Selwyn’s properties have changed hands in the past year, with values only edging up by 0.4 percent.
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By contrast, a lower turnover rate in say South Taranaki (6.1 percent) has come
alongside faster value growth, of 8.0 percent. Then in Rotorua, for example, where the turnover rate has been low (3.9 percent), values have risen by a brisk 9.6 percent, faster than half the authorities in the top 10.
The problem with the “rule” is that most people just focus on the demand side of the equation: e.g. low turnover = weak buyer demand = weak values. However, it’s equally possible that low turnover = inactive vendors (not many willing sellers) = potentially strong values.
We can see this second side to the argument with an easy comparison of Auckland and Wellington. In Auckland, the turnover rate in the past year has been 4.1 percent, with values edging up by 0.8 percent. This low turnover reflects poor affordability and hence restricted buyer demand. Indeed, there are plenty of properties available on the market in Auckland (meaning that turnover isn’t held back by a lack of properties to buy).
In Wellington however, turnover of 3.9 percent has been very similar to Auckland, yet values in the capital are up by about 7 percent over the past year. So it’s no surprise to see that Wellington’s listings situation is currently very tight and the lack of choice for prospective buyers is bolstering prices.
Overall, simply equating a low (high) turnover rate to weak (strong) value growth is not always enough. The simple truth is that buyers can’t buy unless there’s a willing seller and, as per the golden rule in economics, it’s the balance of demand and supply that always needs to be considered in assessing market activity and property values.
Kelvin Davidson is senior researcher at CoreLogic NZ
