New Zealand property prices fall at fastest pace since the GFC

Property prices across New Zealand have continued to fall, with the rate of decline now at the same level as seen during the Global Financial Crisis.

According to the CoreLogic NZ House Price Index (HPI), property values across the country fell a further 0.9 per cent in July, taking the three-month drop in values to 2.5 per cent, the largest quarterly fall since October 2008 (-3.4 per cent).

CoreLogic NZ Head of Research, Nick Goodall, said demand had fallen away as interest rate rises reduced buyers’ ability and willingness to borrow.

“Housing affordability remains significantly stretched despite values falling, with the combination of high prices, following a significant upswing in values, and increasing interest rates restricting the number of buyers who are able, let alone willing, to borrow the sums of money required to buy property,” Mr Goodall said.

“Loan-to-value (LVR) restrictions also sit at their tightest setting on record, with banks remaining below the allocated 10 per cent speed limit. 

“The increase in listings on the market over the past year or so has also switched pricing power towards buyers.”

Property values fell across the six main centres in July, with the previously resilient Christchurch also seeing negative price growth.

Mr Goodall said falling values on a national level will likely drag down prices in all areas.

“As we’ve been noting for some time now, supportive factors such as better affordability in Christchurch may mean that values and demand hold up better than the other main centres through this correction phase,” he said.

“But that doesn’t mean Christchurch will be immune from the downturn.”

Mr Goodall said even Wellington had now started to record negative growth for the first time in a decade.

“This illustrates a remarkable turnaround after the annual growth rate peaked less than a year ago in October 2021 at 36.1 per cent, but has since slowed and now fallen back to take the average value below the same time last year ($1.04 million),” he said.

Weakness is evident across the Wellington region with Porirua (-4.6 per cent) and Wellington City (-4.5 per cent) showing the largest value falls over July, but all five main urban areas are seeing at least a 1.5 per cent fall. 

Aside from affordability pressures impacting values in the capital, as well as the rest of the country, a previously heightened presence of first home buyers, but now subsequent decline, may also be a factor in the sharper turn-around, with this sector of the market most impacted by the latest tightening of LVR restrictions. 

“A significant increase in development activity over the past two years, particularly in Lower Hutt and Upper Hutt, could also be a factor in recent weakness,” Mr Goodall said. 

“Some buyers who stretched their budgets based on development potential may now find that potential may not be realised soon enough to make the sums work.”

Values in Dunedin fell a further 1.3 per cent in July to take the cumulative fall since the start of the year to 5.8 per cent.

In Aotearoa’s largest city, Auckland, values remain at least 7 per cent above the same time last year, but quarterly falls of 4 per cent or more in the most populous areas show the tide has turned here, too. 

Mr Goodall said he expects values to continue to decline for the remainder of the year.

“With affordability unlikely to improve significantly while interest rates continue to increase, the outlook for values across the country is to follow a similar path to the first half of this year for the rest of 2022,” he said.

“The relatively controlled nature of this downturn is unlikely to ring alarm bells for those at the RBNZ especially after such a strong upswing in values prior to the end of 2021. 

“Trying to get control of inflation, through OCR increases is likely to remain their number one priority for now.

 “That probably means discussion of LVRs loosening is premature, with the RBNZ most interested in financial stability, increasing the share of lower equity loans would not be the prudent option, especially with values continuing to fall in many parts across the country, increasing the likelihood of borrowers falling into negative equity.” 

However, Mr Goodall noted this isn’t necessarily a huge problem provided borrowers are employed and can still service the debt.

“Indeed, it’s probably worth noting that even if the LVR restrictions were loosened, they are unlikely to bring a significant lift in demand,” he said.

“The impact of loosening the LVRs while the market is increasing is very different to loosening them as the market is decreasing – even if borrowers could secure the funding, would they want to? 

“With dented confidence and expectations of value falls to come, many would suggest not.”

Mr Goodall said the RBNZ might impose debt-to-income (DTIs) limits at some stage in 2023, along with a loosening of LVRs to help protect both borrowers and lenders in the event of further sharp price falls.

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Rowan Crosby

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