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New Zealand Housing Slump Looks to Be in its Final Stages

Sally Lindsay discovers there are signs in key regions across the country that prices are stabilising or in some cases increasing.

By: Sally Lindsay

2 August 2023

CoreLogic’s latest House Price Index (HPI) shows there are house price rises in some parts of the country and values are not dropping as fast over the rest of New Zealand.

The HPI dropped 0.4 per cent last month – the smallest decline since the 0.3 per cent in January and a significant drop from June’s 1.2 per cent decrease. The annual decline in the HPI is 10.1 per cent.

CoreLogic chief property economist Kelvin Davidson says there are signs in key regions of prices stabilising or in some cases even increasing.

Values in five of the seven main sub-markets in Auckland were either flat or higher in July, with most of the other main centres down a marginal 0.2 per cent or 0.3 per cent in the month.

For the wider Wellington market, values increased 0.3 per cent, the city’s first rise since February last year.

Davidson says market indicators started looking stronger in June and positive momentum has continued in July.

“There are several key factors pointing to the trough for house prices, including a broad peak for mortgage rates, albeit some further tweaks by the banks can’t be ruled out, an easing in the CCCFA and LVR rules, still-high employment, and solid net migration flows.”

He says the easing in LVR policy has already helped more low deposit investors into the market, such as those with 35-40 per cent deposits who were previously locked out.

There has also been a pick-up in the volume of sales, stock on the market is dropping, and this is likely starting to result in the re-emergence of competitive price pressures.

Shifting national fundamentals appeared to be mirrored across most of the main centres, with Hamilton, Tauranga, Christchurch and Dunedin each recording a fairly modest drop in average property values last month, of either 0.3 or 0.2 per cent.

Auckland’s drop was more significant at 0.6 per cent, but that weakness was not universal for the super-city as a whole; instead occurring in only one or two of its sub-markets, Davidson says.

The July result was notable in Wellington for being the first increase in average property values (0.3 per cent) in 17 months. Amongst the sub-markets, Kapiti Coast was flat in July as was Lower Hutt. But Upper Hutt rose 0.2 per cent, Wellington City 0.4 per cent, and Porirua 0.6 per cent.

“It’s early days for the Wellington market, but the fact values previously dropped so significantly suggests it could be among the first areas to bounce back and lead any recovery,” he says. “That dynamic might have just started to play out in July’s result.”

Auckland has been another key part of the country to have seen significant falls in property values during the downturn. But July’s data also showed hints of a turnaround despite Auckland City recording a decline of 1.6 per cent last month and Rodney values dropping 1.4 per cent.

Waitakere was more or less flat with a minor 0.1 per cent drop. Franklin stabilised, while North Shore, Manukau and Papakura rose more significantly.

“There are still appreciable affordability challenges for buyers across Auckland, whether that be first home buyers, investors, or relocating owner-occupiers,” Davidson says. “But July’s data did start to hint that demand has returned in many areas.”

Regional results

Outside the main centres property value trends remained a bit patchy last month, as was typically the case at a wider turning point for the market, he says.

Queenstown, Rotorua, Napier, Whangarei, Gisborne and Whanganui all recorded sizeable drops in value last month, although Queenstown remains higher than the levels recorded at the same time last year.

By contrast, Invercargill values were stable, with Palmerston North and New Plymouth recording increases. Those three areas have also seen values hold steady or increase over the broader three-month period since April too.
“New Zealand is not just a single housing market and the disparity in the regional results should reaffirm expectations that in many parts of the country the end of the downturn is going to be anything but smooth,” Davidson says.

Outlook

A range of metrics and indicators made it increasingly clear the trough for New Zealand’s house prices has essentially arrived, with further evidence across all index measures likely to emerge in the next couple of months.

“There will be mixed views about the point we’re at in the cycle. Existing property owners will no doubt be pleased but there are always two sides to the coin in the housing market, and aspiring buyers would clearly prefer to see further declines.

“Reaching a trough in the downturn does not mean there’s likely to be a sudden snap back to widespread and strong gains in house prices and it will be unsurprising if some areas record further falls in the coming months, while others stabilise or see mild increases,” Davidson says.

Generally speaking, the “next phase” of the cycle could still be relatively muted, given that affordability remains stretched, mortgage rates aren’t set to drop anytime soon, and also in light of the prospect of caps on debt-to-income ratios for mortgages early next year.

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