On our quarterly index, which is based on agreed sales each quarter, national average house values recorded a fall in the COVID-affected Q2 period as a whole. Of course, price falls shouldn’t really come as much of a surprise, given the recession and rising unemployment. Ultimately we suspect that any further falls in prices will end up being smaller than in the GFC (and certainly the evidence from recent sales towards the end of June was stronger for prices), and there are already hints that some investors have begun to seek out a property bargain.
The residential property market has bounced back relatively well from lockdown, with most measures of activity showing a steady rise since the end of April. The early evidence for property prices was also relatively encouraging. However, our quarterly index of values – which is based on agreed sales in each quarter – is now starting to show clearer signs of weakness, with Q2’s COVID-affected figures declining from pre-COVID Q1.
Indeed, based on these quarterly figures, the national average value of a house declined by 1.5% in Q2, with significant falls seen in Dunedin (-2.5%) and Auckland (-2.4%). As the first chart shows, Wellington and Christchurch recorded minimal declines in Q2, and Tauranga actually saw further increases. But the overall message is that the worm seems to have turned for property values in the main centres.
Around the rest of the country, it was generally a similar pattern – with falls in ‘holiday’ areas such as Queenstown and Thames Coromandel, but also in New Plymouth and Wanganui as examples (see the second chart). That said, it’s also important to note that values haven’t yet turned down everywhere – for example, Invercargill and Rotorua (another ‘holiday’ destination) actually saw further rises in house values in the second quarter.
One important point to note about these quarterly figures is that they’re preliminary and will change as more sales information feeds through the system. However, given that we’re in recession and that unemployment is rising, it’s no surprise that property values have started to face some downwards pressure.
And although it’s early days yet to be making a link between the weaker performance of values and the activity of different buyer groups, it’s still interesting that the latest CoreLogic Buyer Classification figures showed a continued rise in cash investors’ % market share in Q2 (see the third chart). To be fair, given that Q2 includes April’s lockdown, this market share pattern is based on a much smaller number of deals than normal. But even so, there might be tentative hints here of some ‘bargain hunting’ by investors with equity to spend (and hence also not affected by banks’ still-cautious credit policies).
Overall, property values seem to have reached a turning point and we estimate that the national average could ultimately fall by 5-7%. That would obviously be unwelcome for any property owner (although a bonus for would-be buyers), but would be a smaller fall than the figure of 10% during the GFC. In addition, those falls need to be viewed in the context of longer term rises – as the blue bars on the first two charts show, even after Q2’s falls, values in most areas are still well above a year ago, while the fourth chart puts that into a much longer context for the main centres. Even a further 5% drop in national values would only put them back at December 2018 levels.