MONEY TALKS: Making sense when the numbers don't add up

By Paul McBeth

Nov. 9 (BusinessDesk) - One thing that's really hard to argue with is historical data, so on the face of it, the property market is back and it wants your dollars.

Real Estate Institute figures show the median house price nationally rose to a record high $380,000 last month and the number of sales logged by estate agents was up by a third from October 2011.

Add in Quotable Value's hike in property valuations a day earlier, and you've got a housing market that seems to be humming along.

After several years of minimal activity, that's surely a good thing, especially given there's a wadge of spring-time listings. It's something that's been noticeably absent for a while.

So if people are out there buying property and are willing to pay record prices, things are hunky-dory right?

Well, that relies on you sticking your fingers in your ears for a few days and missing out on what the new central bank governor had to say about house prices and government figures showing the worst unemployment figures in 13 years, especially in Auckland, where house prices are on fire. Hmmm.

Reserve Bank head Graeme Wheeler had quite a lot to say about house prices in his first set-piece at this week's six-monthly financial stability report.

Like any good ex-Wellington representative cricketer, he's played a straight bat early in his innings.

However, one consistent message was a shot across the bows of banks not to let their balance sheets expand excessively.

"If credit demand was to strengthen significantly, and banks were willing and able to accommodate that demand, indebtedness (relative to income) could resume an upward trend, eroding households' resilience to shocks," the bank said.

He banged on about several times about the disparity between house prices and household incomes. Houses now cost on average 4.5 times disposable income, down a bit from the peak of 5 times a few years back, but still well up on the 3/3.5 times back in the 1990s, and one to two times in the 1960's.

In other words, a record high median house price of $380,000 isn't necessarily a good thing if incomes won't support it.

Government figures this week showed average weekly earnings for a full-time worker rose an annual 3 percent to $1,043.11 in the September quarter. Stretch that out to a year and it works out at about $54,200 per annum - a lot more than a lot of people actually earn since the average includes the incomes of the rich.

The average house price is now seven times the average salary, before you take out tax and the cost of daily living. Most home-owning households with mortgages rely on two incomes, but even so, household disposable income needs to be north of $84,000 to afford that median house price.

What's worse is other government stats showing unemployment rose to 7.3 percent. That's the highest level since June 1999, when the Asia Crisis was going on, and even worse than when New Zealand was in the depths of recession a few years ago.

That's 175,000 people who are actively looking for any kind of work. That doesn't include the 124,900 people who are available to work but aren't looking because they either don't need to or have just given up the hunt, because the jobless rate is more like 12.3 percent.

Nor does it include the 113,300 people who have got some part-time hours, and are on the prowl to beef that up.

Economists and the government would like to disbelieve this number. It's way out of kilter with where other indicators have been pointing, and the series is notoriously volatile. On the other hand, unemployment has been rising for three quarters now.

Which turns things into a bit of a muddle when you're trying to work out if the housing market has really settled down. After all, who can buy property if they don't have a job?

What's more likely is that the labour market has soured more than people thought it would. Let's just hope not as badly as the headline figure would have us think.

With home affordability the topic du jour because of Auckland's potential bubble and Christchurch's reconstruction, the government may just have to peek at some demand-side issues if the jobs situation gets any worse.

None of this will bridge a disturbing picture, but it might spur a bit more action from policymakers to sort out their regulatory settings.



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