The “floor” in the New Zealand property market is getting close, with values falling just 0.2 per cent last month, according to CoreLogic NZ.
The CoreLogic House Price Index (HPI) showed values declined 1.8 per cent over the past three months, with prices now 13.2 per cent below their peak.
However, they are still 24.3 per cent above March 2020’s pre-Covid levels.
CoreLogic NZ Chief Property Economist Kelvin Davidson said it’s only a matter of time until the national average flattens out or even starts to rise.
“Although values have continued to edge lower nationally, the floor is likely to be near, with many of the key fundamental drivers now turning around,” Mr Davidson said.
“It’s notable that mortgage rates are likely to now be close to their peak, although further small changes can’t be ruled out as global markets, and hence wholesale financing costs, remain a little jittery.”
He said on top of that, migration has significantly boosted property demand and labour markets remain robust.
“We’re also now starting to see the impact of the loosening in the loan-to-value ratio rules from June 1 flow through to more low-deposit lending for both owner-occupiers and investors with a 35-40 per cent deposit, who were previously locked out,” Mr Davidson said.
Mr Davidson said the slowing downturn was seen across most main centres.
“Auckland, Hamilton, Tauranga and Wellington were all down by only 0.2 per cent or 0.3 per cent in August, and Christchurch actually saw a 0.2 per cent rise in average values,” he said.
“Dunedin’s 1.1 per cent drop was an outlier, but is much more likely to be a blip than a new, weaker trend.”
He said some key parts of previously weak markets are showing signs of renewed property value growth.
“For example, North Shore and Manukau in Auckland have both recorded two consecutive monthly rises, as have Upper Hutt and Wellington City,” he said.
“These markets aren’t ‘cheap’ by any means, but it would certainly appear that the sharp falls previously seen have brought some buyers back into the fold.”
Mr Davidson said after a rise in the average property value across wider Wellington in July, the latest figures showed a decline (down 0.3 per cent), due to falls in Porirua (down 0.4 per cent) and Lower Hutt (down 1.2 per cent).
“After the increases in both July and August, average values in Upper Hutt and Wellington City have now edged up by a total of around 0.5 per cent apiece – small in the context of the prior downturn, but of course, each cycle has to start somewhere,” he said.
“Auckland has been another key part of the country to have seen significant falls in property values during the downturn, but alongside parts of Wellington, is also now hinting at a start of the next phase.
“Indeed, North Shore and Manukau (both 0.5 per cent) saw their second rise in a row in August, while Franklin also recorded a gain of 1.4 per cent.”
Mr Davidson said Auckland property remained pricey, whether you’re a first home buyer, investor, or relocating owner-occupier.
“But it’s less expensive than it used to be, and this may just be kick-starting a bit of demand in some parts of the super-city,” he said.
Outside the main centres, property value trends remained a bit patchy in August, as is typically the case at a wider turning point for the market, Mr Davidson said.
Gisborne, Whanganui, and Nelson all saw average values fall by at least 1 per cent in August, with New Plymouth (down 0.7 per cent) and Napier (down 0.6 per cent) also subdued.
However, there were only modest falls in Palmerston North, Whangarei, and Rotorua, while Queenstown increased again.
Looking forward, Mr Davidson said 2023 was expected to see prices decline before the recovery started.
“However, the next phase for the market still looks likely to be slow and patchy, rather than the rampant upturn we saw over 2020-21,” he said.
“After all, the volume of sales is rising from a very low base of less than 60,000 annually, and it may be quite some time until purchasing activity returns to ‘normality’, which is around 90-95,000 sales per annum.”
According to Mr Davidson, affordability is still challenging, with mortgage rates set to be “higher for longer”, and debt-to-income ratio caps for mortgage lending remain on the cards for 2024.
“In that environment, buyers won’t feel excessive pressure to secure a deal before somebody else does, in turn keeping some kind of lid on price growth,” he said.
“Granted, ‘animal spirits’ can drive faster growth in values than the underlying drivers would suggest is likely, but psychology will likely have a lesser role to play when mortgage rates are seven per cent and those real cash outgoings to service debt each week are high.”