Upgrading your home is gradually getting easier across New Zealand, with new data showing the premium to trade-up is on the decline.
According to CoreLogic NZ, the gap in median values between three and four-bedroom properties has fallen in many locations including Auckland City, Waitakere, Manukau, Wellington City and Dunedin.
Chief Property Economist, Kelvin Davidson said in June last year the gap was still at least $150,000 across each of the main centres and it had increased sharply from mid-2020.
“Last year’s momentum has certainly vanished, with all key areas seeing a smaller rise in the trade-up premium over the past 12 months than in the previous period – consistent with the change in wider market conditions we’ve seen lately,” Mr Davidson said.
According to Mr Davidson, when premiums were at their highest, many would-be buyers opted to renovate rather than try and upgrade – putting pressure on both build costs and leaving less stock on the market.
Mr Davidson said there are still areas that are commanding a high premium to upgrade.
“The margin is still about $400,000 or more in areas such as Auckland City and Manukau, but at least it’s fallen,” he said.
“Of these areas, Dunedin has the smallest trade-up premium, at $154,000, down a touch from $156,000 a year ago (but still higher than $141,000 two years ago).
“It’s also interesting to look at a long-run comparison between an area such as Wellington City (where the market boomed from 2015 to 2021 but has since dropped sharply) and the ‘steadier’ Christchurch market.
“Christchurch’s trade-up premium was consistently higher than Wellington’s (even though values themselves are lower in Christchurch), but also that the gap closed in 2020, and then Wellington’s premium went above Christchurch’s for the first time last year.
“However, ‘normal service’ has resumed this year as Wellington’s premium has dropped but Christchurch’s has continued to rise.”
Despite premiums falling, it still takes quite a bit of cash or borrowing capacity to trade-up in many areas of New Zealand, Mr Davidson said.
“Aside from Dunedin, the gap is at least $202,500 (Upper Hutt) in each of the other markets covered here, and at least $300,000 in Porirua, Rodney, North Shore, Manukau, and Auckland City,” he said.
“And of course, with higher mortgage rates, there’s an increased regular debt servicing burden too.
“It may well be these still-high costs to shift house have been a factor behind the recent dip in the percentage share of property purchases going to movers (relocating owner-occupiers).”
Mr Davidson said it wouldn’t be a surprise to see the trade-up gap generally continue to shrink in the coming months, given any particular percentage fall across the market as a whole translates into a bigger dollar fall on higher value stock.
“In other words, that will make trading up a little easier, especially with more listings and choice now available too,” he said.