New Zealand house prices continue to soften

New Zealand property prices are increasing at a slower rate, with the latest CoreLogic House Price Index (HPI) showing just a 0.7 per cent rise last month.

The national measure of housing prices flattened out to 0 per cent in March, a further drop from the February reading of 0.8 per cent and the lowest monthly rate of change since the weakness which followed the initial Covid enforced nationwide lockdown in August 2020.

Across the country, each of the main centres saw slowing growth on a monthly, quarterly and annual basis, led by Dunedin where values fell 1.3 per cent in March – the largest monthly decline since February 2009.

The annual growth rate for Dunedin also dropped to 12.5 per cent, which is down from the peak rate of growth of 23.2 per cent in October 2021.

Property values also fell in Hamilton (-0.9 per cent), Wellington (-0.9 per cent) and Christchurch (-0.2 per cent) while Auckland (1.4 per cent) and Tauranga (0.6 per cent) both saw increases.

Source: CoreLogic NZ

CoreLogic NZ Head of Research Nick Goodall said affordability is starting to impact many of the country’s property markets.

“After such a significant upswing in values, some of the areas which saw the greatest deterioration in affordability are now also at risk of the greatest vulnerability,” Mr Goodall said.

“The impact of tightening credit and increasing interest rates has reduced the pool of buyers who are willing and able to pay recent prices and this has led to a reduced number of property transactions.”

Preliminary sales figures for March are indicating the month should end with approximately 7000-7500 sales once all transactions are completed.

This would be slightly up on the February figure but 10-20 per cent below the long term averages for March, according to Mr Goodall.

“As properties stay on the market longer and expectations of weaker conditions ahead grow, buyers are finding themselves in a stronger negotiation position, with more time and leverage than at any stage in the last couple of years,” he said.

“Stories of ‘bargain hunters’ and ‘cheeky offers’ are becoming more prevalent.

“This switch of power to the buyer came sooner than most were expecting and will vary around the country.”

Across the other main urban areas, growth rates remain mixed and inconsistent, which is a clear sign of change, Mr Goodall noted.

Queenstown saw growth of 11.3 per cent last month, however, that result comes on the back of low transaction numbers.

Rotorua and Upper Hutt in particular saw values weaken over March (-2.1 per cent and -2.0 per cent respectively), while Gisborne values jumped 3.4 per cent over the month. 

Mr Goodall said the run-up in prices means many new buyers are facing difficulty in paying higher prices and repayments.

“Much of the concern for future vulnerability is for the equity position, and ability for recent home buyers, and in particular first home buyers, to pay higher mortgage repayments,” he said.

“The increases in interest rates over the past nine months are a key reason for this, with most terms now more than 1.5 percentage points higher than their low point.

“Anyone negotiating that in their budget could be looking at an extra $40 per fortnight for every $100,000 in debt they’re refixing. 

“Assuming 50/50 split terms on the average mortgage ($550k according to the RBNZ) and that could mean an extra $100 per week in mortgage repayments, on top of high inflation which has caused the current cost of living crisis.” 

Mr Goodall said the robust economy could help protect against a severe downturn in property values.

“While the market settings and backdrop for the downturn which followed the GFC are very different to now, it is an interesting recent example of what can happen when credit is persistently constrained. 

“The total fall in value of 10 per cent from peak (October 2007) to trough (February 2009) is relatively well publicised but the length of the downturn is not. 

“In total it took five years (from October 2007 to September 2012) for property values to get back to parity with the pre-GFC peak, so perhaps the risk is not so much for a large scale drop, but expectations should probably be tempered for how long it takes the market to stage a nominal recovery.”

Mr Goodall said interest from property investors is also likely to continue to slow down on the back of reduced tax advantages and tighter lending restrictions.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.