The Real Estate Institute of New Zealand's (REINZ) monthly housing price index is in for an overhaul after the central bank found that the series had flaws that made it difficult to identify trends in property prices.
The REINZ series has "higher peaks and lower troughs" in periods of extreme turnover, both high and low, compared to the more accurate QV Valuation measure, with "sales volumes on cheaper property more cyclical," according to a Reserve Bank discussion paper on the development of stratified housing price measures.
Stratification is where suburbs are given weightings relative to the median price of sale to create an index to more genuinely reflect property price movements.
"By using detailed sale price information collected by REINZ, the bank has developed a housing price measure that provides a timely and regular reading of housing price movements," said central bank Assistant Governor John McDermott in a statement.
"Obtaining timely signals on housing prices (is) important for analysis of the New Zealand economy."
Still, even though the stratified measure is "superior" to REINZ's previous median gauge, both "are inferior to the QV quarterly house price index as an indicator of short-term price movements," the bank said in its discussion paper.
More people believe now is a good time to buy a house with price expectations returning to "neutral", according to ASB's Housing Confidence Survey out today. Property values continued to improve in June, according to REINZ and QV research.
REINZ doesn't cover all transactions, as not all sales are conducted by its members, but the decline evident through the 1990s and earlier this decade, reflecting the rise in private sales, has ended, according to the central bank's report.
Reserve Bank Governor Alan Bollard has acknowledged a pick-up in the property sector as rising net migration and lower interest rates boost demand for houses, and economists say Bollard can't afford to cut rates anymore for fear of stoking the market and reigniting a housing bubble.
REINZ president Mike Elford said the body's new index would be launched on August 14.
The central bank found both the QV and REINZ series showed similar long-term trends, but differed during turning points, which was when "timely and representative signals" was important to policy makers.