Widespread fall in New Zealand property prices continues

The downwards momentum in New Zealand residential real estate values continued throughout May with prices falling 0.8 per cent.

The CoreLogic House Price Index also showed a quarterly decline of 0.9 per cent – the largest drop over a three month period since the end of 2010 when the market was still in recovery mode from the Global Financial Crisis (GFC).

CoreLogic NZ Head of Research, Nick Goodall said Christchurch was the only main centre still experiencing growth.

“For the main centres, the persistent declines in both Wellington and Dunedin housing values have seen the annual growth rate plummet to single figures, while Hamilton is hanging on to double digit growth at 10 per cent,” Mr Goodall said.

“For Wellington, this has been a dramatic reduction from the heights of 36.1 per cent growth in the year to October 2021.

“Christchurch remains the only main centre experiencing any real growth – supported by better affordability.”

Mr Goodall said more affordable locations were fairing better.

“The latest house price-to-income ratio in Christchurch sits at 6.8, compared to next-best Wellington at 8.1,” he said.

“Similarly, the share of income required for mortgage repayments is more favourable in Christchurch (38 per cent) ahead of Wellington (45 per cent).” 

Quarterly rates of change continued to fall across Auckland in May, except in Rodney, where a minor ( 0.1 per cent) fall in May had little impact on the rest of the quarter’s growth, which totalled 2.1 per cent. 

There were relatively consistent declines across the larger four areas of Auckland in May, with North Shore, Waitakere, Auckland City and Manukau each seeing falls of either 1.6 per cent or 1.7 per cent.

In Wellington, the Hutt Valley (both Upper and Lower Hutt) had the largest fall in value over the past three months (down 6.2 per cent and 4.5 per cent respectively).

Values are also scaling back in Wellington City (down 3.6 per cent) and Porirua (down 3.1 per cent). 

Renewed enthusiasm for the Kāpiti Coast, after the competition of Transmission Gully, may be supporting property values in the area.

Mr Goodall said the sharp increase in the cash rate had put property prices under pressure.

“The published forecast for the OCR now has a peak of 4 per cent in the middle of 2023, so little more than a year away,” he said.

“Only three months ago the forecast peak rate was 3.5 per cent at the end of 2023. Things are moving quickly.”

Mr Goodall said many fixed rate loans would expire in March 2023 and people could see a higher interest rate than the serviceability rate they were tested at.

“This will require some severe tightening of other spending which is expected to eventually slow inflation, but also has the potential to weaken economic growth more broadly, to the point where a recession is being talked about as being more likely,” he said.

“The RBNZ have given themselves some insurance for this though, stating that, ‘Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level’, thus opening the door for OCR cuts if and when required, to provide more stimulation.”

The RBNZ official forecast for property values, is for the current downturn to culminate in a fall of 11.8 per cent from peak to trough, come the end of March 2023.

Mr Goodall said this was not an insignificant drop, but given the recent upswing should be relatively manageable for many people. 

”If this scenario were to play out, it would ‘only’ take nationwide values back to the same level as at the middle of 2021, limiting the number of recent entrants who could be exposed and in negative equity,” he said.

“Through the last major downturn (Oct 2007-Mar 2009) values fell 9.9 per cent, but it did take a total of five years for values to recover back to the previous peak, so expectations of a return to an upward trajectory should be tempered. 

“The impact of the weakening market on property values is becoming clearer, and while the reduced market activity is often related to reduced real estate agent commissions, the broader impacts of fewer market transactions are not often considered.”

CoreLogic expects transactions to continue to drop sharply to 78,000 sales throughout 2022, a significant reduction from the 92,000 forecast only three months ago.

“Not only will agents be budgeting for less income, there’s also a broad range of industries and professions intertwined with the real estate industry and the transactions within,” Mr Goodall said.

“For example, registered valuers will likely see reduced work, fewer transactions will hit the banks’ bottom lines as new lending activity reduces, moving companies may have less big moves to do, insurance companies could see fewer new inquiries and even telecommunications and utility companies could see less demand with fewer new households being created.”