Run Of Play All One Way
Despite the slide there are early signs a trough in house prices might be on the horizon, writes Sally Lindsay.
30 September 2022
The run of play in the housing market continues to be largely in one direction as the REINZ House Price Index (HPI) fell another 1.4 per cent in August to be 5.9 per cent down on the same month last year.
The median house price across the country of $800,000 was down by the same rate as the HPI in August. The median residential property price for New Zealand, excluding Auckland, remained unchanged compared to last year at $700,000. There was a month-on-month drop of 2.8 per cent from $720,000.
Four regions had an annual decline in the median price last month. Auckland’s median price dropped 8.3 per cent compared with August last year, down from $1,200,000 to $1,100,000.
‘From early next year we see a gradual recovery in prices’ Jeremy Couchmand
Six of Auckland’s seven territorial authorities had negative annual growth, down 13.4 per cent. Waitakere had the greatest decline followed by Auckland City where the median price was down 12.3 per cent.
In Wellington the median price was down 9.3 per cent annually, from $860,000 to $780,000, last month. Carterton had a median price drop of 25.5 per cent, while Wellington City was down 21.8 per cent. The Manawatu/Whanganui region was down 6.6 per cent from $610,000 to $570,000, and Northland had a drop of 1.2 per cent from $650,000 to $642,000.
All other regions had annual increases in median price. West Coast recorded the greatest percentage increase in the median price, up 25 per cent from $280,000 to $350,000. The median price in Marlborough increased 14.5 per cent from $585,000 to $670,000, and Gisborne had a median price increase of 13.2 per cent from $500,000 to $566,000.
Meanwhile, Kiwibank says it’s hard to find good news from within the latest housing market data, but it did try. For instance, there are early signs a trough in house prices might be on the horizon, says senior economist Jeremy Couchman.
“The 4,891 sales recorded by REINZ in August were almost 8 per cent up compared to July (seasonally adjusted), and compared to last August, sales were 18 per cent lower but up from the 35 per cent year-on-year drop recorded in July.”
He says sales are a forward indicator of house price movement, loosely leading house price growth by about six months.
“We are forecasting house prices to be 13 per cent lower by year end. A dramatic fall for sure, but a 13 per cent trough would only take the HPI back to levels seen at the start of 2021. From early next year we see a gradual recovery in prices.”
Falling house prices are drifting closer to the depths of the global financial crisis (GFC) in 2008.
Over the three months to the end of last month prices fell 3.5 per cent compared to the GFC’s 4.4 per cent bottoming out in August 2008.
CoreLogic’s House Price Index (HPI) shows the national measure of property values fell a further 1.8 per cent in August alone, twice the rate of that in July at 0.9 per cent.
CoreLogic research head Nick Goodall says restricted, more expensive credit continued to impact increasingly weary buyers, with the property market downturn firmly entrenched and evident across the entire country.
“Consumer sentiment can be a key influence on the market and the already smaller pool of would-be buyers are happy to bide their time in the falling market.”
Despite this a handful of commentators are now starting to signal the downturn “on the ground” may come to an end within the next six to nine months.
Goodall said while it’s likely there is still time to run on the downturn, there have been green shoots of optimism sprinkled through the mostly negative data flows.
However, CoreLogic chief property economist Kelvin Davidson says during the GFC prices dropped and then stayed flat for the next one to two years, which suggests caution is needed about the 2023-2024 outlook.
The housing market is desperate for oxygen, particularly with significant value drops and no sign of it picking up, says QV.
QV’s House Price Index (HPI) shows house values across the country have fallen $89,917, down 8.5 per cent or $424 a day since January.
Wellington is the hardest hit region, with the average value in the capital dropping $160,941, down 14.7 per cent or $759 a day since January.
In Auckland house values have dipped $157,500, down 10.2 per cent or $743 a day since the peak in January. The average home value in the region is now $1,383,668, which is just $15,416 higher than at the same time last year.
Average home values across the country dropped 5.5 per cent over the three months to the end of August, compared to a 4.9 per cent drop in July. The national average value is now $973,948. A year ago it was $963,046, so the latest figures show just a 1.1 per cent increase in value compared with 4 per cent annual growth last month.
“There’s no immediate sign of things getting any better with interest rates likely to rise further, a dwindling pool of buyers spoilt for choice with an oversupply of listings and business confidence starting to wane,” says David Nagel, QV general manager.
Wellington and Tauranga are showing the largest three-month value drops of the main urban areas with falls of 9.4 per cent and 7.8 per cent respectively. Dunedin is not far behind with a 6.7 per cent reduction in average home value this quarter.
‘Consumer sentiment can be a key influence on the market and the already smaller pool of would-be buyers are happy to bide their time’
More than $2.62 billion of residential building work was consented in July, up 4.1 per cent compared with the same month last year, despite the construction industry facing a slowdown.
The total value of new building work consented for the July year was $31.571 billion, up 16.9 per cent compared with the previous 12 months.
In the July year 50,614 new homes were consented, up 12 per cent from the previous year.
The value of new consented residential building during the July year was $22.585 billion, up 18 per cent on the previous 12 months.
Although figures suggest there is another 18 months to two years of work in the pipeline for builders, there has been a noticeable slowdown in stand-alone houses being built, with buyers opting for townhouses because they are perceived as more affordable.
Statistics NZ construction and property statistics manager Michael Heslop says the number of new homes consented remains high due to the rise in multi-unit homes, especially in Auckland.
Nationally, there were 27,287 multi-unit homes consented, up 35 per cent compared with the July 2021 year.
Over the same period 23,327 stand-alone houses were consented, down 6.4 per cent.
In July this year alone just 1,730 stand-alone houses were consented, down 25.3 per cent compared with July last year, while 1,853 townhouses were consented, up a whopping 47.3 per cent compared to the same month last year. The annual number of multi-unit homes consented has increased nearly ninefold in the past decade.
As the pain of interest rate rises sinks in for property investors, the number thinking of buying another property is yet again shrinking.
The latest Tony Alexander/Crockers survey of property investors shows just 22 per cent of investors are keen to buy another property, down 2 per cent over the past two months.
State Of Flux
This has happened at the same time as there has been a rise in investors saying they are thinking of selling, up to 22 per cent from 20 per cent.
During July a net 1 per cent of survey respondents say they plan on selling property. Alexander says this is the weakest result since the survey started and challenges feedback from other surveys suggesting interest in buying by investors is rising.
"Clearly the market is in a state of flux with high uncertainty regarding the direction of change in interest rates, availability of credit, outlook for the economy, prospects for the 2023 general election and potential tax changes, population shifts, and supply changes.”
The greatest reason given by investors for selling is to fund their retirement. Alexander says this re-emphasises the long-term nature of residential property investment. The number of investors planning to never sell or hold for at least 10 years continues to track at close to 65 per cent.
Over the past two months there has been some recovery in the number of investors looking to grow their housing portfolio by carrying out a development themselves.
At the same time interest in buying an existing property remains high while there has been a noticeable decline in the number who will purchase a new property built by another developer.
Alexander says this change might reflect the flow of stories about problems for developers, making existing investors more wary than usual about contracting for a new build. “Reports of weak off-the-plan sales for developers abound.”
Investors are steering away from apartments while at the same time the sharp drop in townhouse projects by investors is a new development.
Alexander says given that so much construction is focused on townhouses and new investor caution about development viability, this result is perhaps not surprising.