CoreLogic New Zealand House Price Index shows market momentum continues to fade

Property values around New Zealand (NZ) increased by 1.8 per cent over June, according to the CoreLogic House Price Index (HPI).

Corelogic’s data indicates a slight reduction in June from the 2.2 per cent growth rate from May, providing early evidence of a gentle deceleration in market momentum in NZ.

CoreLogic’s Head of Research, Nick Goodall believes the turnaround will develop through July.

“The rate of growth through June slowed in 12 of NZ’s 18 largest markets, with a further three recording a drop in values over the month. In Gisborne, where values increased 35 per cent in the past 12 months, there was a surprising change of direction with a fall in value of 0.9 per cent over June.

“The exceptional growth displayed during the past year was not sustainable, particularly with increased deposit requirements, market uncertainty driven by government regulation and the prospect of higher interest rates. The turnaround should perhaps not be too much of a surprise, though the timing of it certainly is,” Mr Goodall said.

Both New Plymouth (0.3 per cent) and Napier (0.1 per cent) also saw minor drops in property values in June, but in both cases the strength of recent growth means the quarterly rates still exceed seven per cent.

At the other end of the spectrum both Nelson and Invercargill saw increases in their monthly rate of growth, at 2.1 per cent and 1.6 per cent respectively, showing not all markets have lost momentum.

Meanwhile in Palmerston North, further growth of three per cent in June has taken the annual growth rate to 38.6 per cent and an average property value of more than $700,000 for the first time.

“Nationally, average property values have increased 22.8 per cent for the 12 months to June. The continued growth in the market, albeit at a slower rate, has taken the average property value across the country above $900,000 for the first time. Meanwhile the total value of all residential property in NZ has now streaked past the $1.5 trillion mark for the first time.

“These milestones will not necessarily be welcomed by all, especially hopeful first home buyers, however the tentative signs of change may provide some hope for would-be home buyers as well as the Government, who are under pressure to tilt the market in favour of new market entrants.

“On that note, the recent agreement to add debt-to-income (DTI) controls to the Reserve Bank’s macro-prudential toolkit adds another element of uncertainty for the market. This is particularly true for investors, for whom any restrictions will likely be tighter, further limiting their activity in the market,” says Mr Goodall.

CoreLogic notes any DTI restrictions would not be implemented in 2021, and with evidence appearing of a cooling market, they suggest it is unlikely NZ’s Reserve Bank will see the need to introduce further constraints in this cycle.

“Impending increases to interest rates are the other major factor weighing on the minds of owners’ and would-be buyers’ minds,” Mr Goodall said.

“A stronger than expected economic performance in quarter one has increased inflation expectations and alongside that comes earlier forecasts for increases to the Official Cash Rate (OCR) and subsequently short term interest rates.

“We have noticed longer term rates are already ticking up and given the high proportion of debt at a household level, borrowers will need to prepared for increased mortgage payments in the not-too-distant future.

“It’s also worth noting that average NZ household mortgages are at record levels and even a small increase in mortgage rates could have a significant impact.

“While our bank valuation activity confirms demand for residential property has and will continue to reduce, persistent low levels of new listings is likely to limit any significant drops in value.

“If the recent signs of weakness persist throughout the rest of the year however, alongside what would be a seasonal uplift in spring listings, we may finally start to see the imbalance of demand consistently outstripping supply addressed,” he said.

Property values in Auckland continue to grow, however the quarterly growth rate has slowed to 5.3 per cent, from a recent peak of 7.4 per cent for the three months ending February 2021.

Reflecting affordability constraints, it’s the more expensive parts of the cities seeing the greatest slowdown in value growth. Values in the old Auckland City area, with an average value nudging $1.5 million, increased by 0.7 per cent over the month compared to Franklin at 3.7 per cent ($860,000).

The average value in Hamilton now exceeds $800,000, as the market grew by a further 1.9 per cent over June. This is the slowest monthly growth rate since December 2020 though, so CoreLogic believes there are signs of a slowdown in a market, which has seen 27.7 per cent growth in the last year.

CoreLogic also indicated Tauranga’s recent ‘Jekyll and Hyde performance’ continued with the monthly rate of growth in June dropping to one per cent, down from 5.1 per cent in May, which was in itself a turnaround from a drop of 1.5 per cent in February.

Such volatility could well be reflective of a market where uncertainty is a defining factor, with inconsistent sales results being achieved depending on property type, location and size.

In Wellington there has been a reduction in the rate of growth, however the monthly rate is still above two per cent, with the annual rate now exceeding 30 per cent for the first time on record (back to 1990).

The strength in growth across greater Wellington is relatively consistent, with the monthly change ranging from 1.5 per cent in Upper Hutt to 2.6 per cent in Lower Hutt.

The average value in both Porirua and Lower Hutt exceeded $900,000 for the first time at the end of June with both experiencing increases of over $220,000 in the last year.

As a city which experienced very little growth for at least the last five years, Christchurch is very firmly playing catch up now, with the annual rate of growth exceeding 20 per cent for the first time since 2006. Growth over June was three per cent, the highest of the main centres.

Meanwhile the momentum in the Dunedin property market has definitely stalled with the monthly rate of growth at 1.3 per cent. CoreLogic indicated this was the slowest rate since October 2020. This likely reflects the sheer exhaustion of a market which has grown by 42.7 per cent in the last two years, and the subsequent impact that has had on housing affordability.

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