Regional differences are felt as the housing market slowdown sets in

CoreLogic’s House Price Index (HPI), which is the most robust measure of the evolution of property values ​​in the market, shows that the New Zealand property market has weakened further as the power passes to buyers.

The national house price measure stabilized in March (0.7%), down again from February’s reading of 0.8% and the lowest monthly rate of change since the weakness that followed the initial lockdown imposed by COVID nationwide in August 2020.

CoreLogic Home Price Index – National and Major Centers

Each of the major centers experienced lower prices or a reduction in the monthly, quarterly and annual growth rate. The reversal in price growth appears most significant in Dunedinwhere values ​​fell -1.3% from March – the biggest monthly decline since February 2009. The annual growth rate fell to 12.5%, well below the growth rate maximum reached only six months ago of 23.2% (October 2021).

hamilton and Wellington also saw a change in market direction with values ​​down -0.9% and -0.8% respectively.

Meanwhile christchurch values ​​appear to have plateaued (-0.2%) after the recent annual growth rate peaked at 38.0% at the end of 2021. The annual growth rate at the end of March 2022 has moderated at 31.6%, which remains high in both contexts and compared to other major centres.

Tauranga also has a relatively high annual growth rate (32.1%), with a further market growth of 0.6% during the month of March. The greater prevalence of “next home buyers” may be a reason for the long period of growth in Tauranga.

Auckland the annual growth rate is lower than these two regions (24.7%), but the monthly growth rate was the strongest of the six major centers at 1.4%. Discrepancies are appearing below the surface though, with the southern parts of Auckland looking weaker than the others (Manukau -0.3%, Papakura +0.1% and Franklin -0.9%).

Meanwhile, Auckland City and the more rural areas of Rodney have seen continued growth (2.6% and 2.3% respectively).

Nick Goodall, Research Director at CoreLogic NZ says “After such a significant rise in values, some of the areas that have seen the greatest deterioration in affordability are now also exposed to the greatest vulnerability. The impact of the credit crunch and rising interest rates has reduced the pool of buyers willing and able to pay recent prices, leading to fewer real estate transactions.

Preliminary sales figures for March suggest the month should end with around 7,000 to 7,500 sales once all transactions have been completed. That would be an increase in February, which is normal for the season, but around -10-20% below the March long-term average.

Mr Goodall said: “As properties stay on the market longer and expectations of weaker conditions ahead rise, buyers find themselves in a stronger negotiating position, with more time and influence than at any time in the past two years. Stories of “bargain hunters” and “cheeky offers” are becoming more common. This transfer of power to the buyer has come sooner than expected and will vary from country to country.

CoreLogic Home Price Index – Major Urban Areas (ranked by annual growth)

HPI Main urban areas

The trend in other major urban areas is also one of increasing weakness. Monthly results are slightly mixed and inconsistent from month to month, which is a clear sign of change. from Queenstown The market seems very volatile as trades dry up, but some sales are still doing well.

Rotorua and upper hut notably saw values ​​weaken during the month of March (-2.1% and -2.0% respectively), while Gisborne values ​​mini-inflated by 3.4% over the month. Most of the other zones experienced very small decreases or very slight increases (between -0.6% and +0.4%).

“Much of the concern about future vulnerability relates to the equity situation and the ability of recent homebuyers, and first-time homebuyers in particular, to pay higher mortgage repayments,” Mr. Goodall.

“Interest rate increases over the past nine months are a major reason for this, with most terms now more than 1.5 percentage points above their lows. Anyone who negotiates this into their budget might be looking at an extra $40 per fortnight for every $100,000 of debt they repair. Assuming a 50/50 split on the average mortgage ($550,000 according to the RBNZ) and that could mean an extra $100 a week in mortgage payments, on top of the high inflation that has caused the current cost of living crisis .

“But it must also be recognized that bank utility tests exist to help prepare borrowers for this eventuality and the deposit requirements mean that the majority should have 20% equity to help hedge against the potential drop in prices. houses. Also given recent growth, a 10% drop in prices would set them back to July levels of last year, while a 20% drop would only go back to a year ago. No one is predicting a 20% drop in house prices, while it’s also important to note that the biggest drop in national average values ​​in recent history was just 10% in the GFC (see below).

Meanwhile, analysis recently released by the Reserve Bank of Australia (RBA) found that while first-time home buyers were more at risk than other buyers due to their low capital, this cohort showed lower rates of Lower mortgage arrears over time and their ability to weather an economic downturn was more important as they enjoyed better job security and faster future earning potential. This analysis is likely to be just as applicable to the New Zealand market as it is to Australia.

Mr Goodall said: “That is perhaps the biggest potential driver of the market swing this year – the economy and with it the labor market. If unemployment remains as low as it is now, the likelihood of motivated or forced selling should remain low, which will help guard against a severe downturn.

“Nevertheless, a look back in history is helpful in providing context for what might happen next. While the market settings and the context of the post-GFC downturn are very different from today, this is an interesting recent example of what can happen when credit is constantly restricted.

“The full decline in value of 10% from peak (October 2007) to trough (February 2009) is relatively well known, but the duration of the downturn is not. In total, it took 5 years (October 2007 to September 2012) for property values ​​to return to parity with the pre-GFC peak, so perhaps the risk is not so much for a large drop scale, but expectations should probably be tempered for how long it takes the market to stage a nominal recovery.

Property investors are already one group that needs to be more careful about keeping finances running smoothly, with reduced tax benefits and tighter lending restrictions. Combined with a reduced supply of short-term capital growth, demand for this sector could decline further.

Mr Goodall said: “Of course, all of this is assuming credit metrics remain as tight as they are, and that seems unlikely. We have already seen a significant decline in loans granted due to the tightening of loan-to-value ratio (LVR) limits, in addition to changes to the Credit Agreements and Consumer Credit Act (CCCFA).

“But the CCCFA will soon be relaxed and banks have been shooting well below LVR limits so have some breathing room to reopen. Self-imposed DTIs, so maybe we’ll consider the first quarter of 2022 the tightest it’s ever had.

Penny D. Jackson