The CoreLogic House Price Index (HPI) for August has found property values are still feeling the effects of the COVID-19 pandemic, with values slightly down (-0.2%) over the month. Housing values have held reasonably firm, with monthly value changes fluctuating around 0% since the country came out of the first series of strict lockdowns in May, with the nationwide three-month change sitting at -0.2%.

In Auckland, the downward trend is more noticeable, with values dropping -1.2% over the same three-month period. Dunedin remains the other main centre to experience a noticeable drop in values, also down -1.3% over the last three months, while values in the other four main centres have flattened out or slightly increased. Hamilton has shown the greatest resurgence in the last few months, with values up by 2.2% since the end of May. Most other main urban areas saw value growth slow in August, as ‘catch-up’ transactions tailed off and consumer confidence reduced.

At the other end of the value growth spectrum remains Queenstown, where property values are -7.4% down over the last three months. Auckland once again provides a large portion of tourists to the adventure capital (behind only Sydney and Melbourne), so the latest lockdown will not have helped any sprouts of recovery. Long-standing affordability problems in Queenstown are an added factor.

For more than a decade CoreLogic has powered the QV House Price Index, but this came to an end in August, reflecting the conclusion of a multiyear arrangement between Quotable Value (QV) Ltd and CoreLogic. The first of September marks the release of the first CoreLogic House Price Index, produced using exactly the same personnel and methodology as the QV House Price Index was until August 2020, under the CoreLogic brand. 

Main centres compared with smaller provincial cities
At an aggregate level, the main centres (-0.7% three-month change) are tracking at a more restrained rate than the smaller provincial cities (+0.0%) and especially the rural centres (+1.3%). Broader based economies in some of these smaller centres, and especially those with a greater reliance on industries less affected by the immediate local impacts of COVID-19, such as agriculture, have translated to more resilient property markets through this volatile time. More favourable housing affordability, due to lower value property as well as a lower reliance on the international tourism dollar are also key factors..

Indeed, property values in Invercargill continue to grow (3.7% in the last three months), despite the uncertainty posed by the Tiwai Point closure. According to Statistics NZ, of all tourism spend in Invercargill only 22% comes from international tourists, meaning the city has been less affected by border closures. The longer-term outlook remains less optimistic, however, with such a reliance on one key employer.

Rotorua continues to defy many pundits’ expectations as well, with property values growing 3.8% over the last three months, although a stalling (+0.1%) in the last month is perhaps a sign of weakness creeping in. The latest round of lockdown restrictions, including Auckland’s stricter Level 3 lockdown, have had and will continue to have an impact on the Rotorua economy, as the Supercity provides the most significant contribution of domestic tourists to the geothermal hot spot (according to AirDNA Marketminder data).

Head of Research Nick Goodall says, “There are many factors and influences at play, and the latest round of social restrictions will have an impact on the economy and subsequently on the property market. However, for as long as significant support (from Government/RBNZ/banks) remains, the chances of a significant correction in values are greatly reduced.” 

Economic stimulus measures supporting property and other asset prices
In its latest Monetary Policy Statement (MPS) the Reserve Bank of NZ (RBNZ) announced further support and possible tools aimed at supporting economic and financial stability. This included the expansion of the Large Scale Asset Purchase (LSAP) programme to $100 billion to further lower retail interest rates, and deliberating on options such as a negative OCR and a Funding for Lending Programme, whereby the RBNZ would fund retail banks directly at near-OCR. These measures are all designed to stimulate the economy and restore confidence and liquidity in financial markets, and will ultimately help to support asset prices (including property).

In the short term though, real estate agent activity since 12 August, as measured by vendor appraisals generated across CoreLogic real estate platforms, fell away to a total drop of -19% (and subsequently recovering to now be down by -9%). This will translate to further constraint in new listings to market and therefore a reduction in advertised supply from already low levels. Meanwhile mortgage activity in August, as measured by valuations ordered by banks, has hardly skipped a beat, with activity up 9% in the final week of August, compared to the week before the restrictions kicked in.

Rolling 7 day count of CMA reports
Rolling seven day count of valuations ordered

“This is hot off a record month for mortgage lending in July and shows that property demand remains strong, further entrenching our view that widespread value drops are unlikely to occur as we move into the typically buoyant spring season,” says Goodall. 

Analysing causes for concern
“We mustn’t ignore the downside risks to the market, but while the latest unemployment figure of 4.0% does not represent the complete picture of people requiring financial support, the latest Ministry of Social Development (MSD) report on those receiving the wage subsidy shows a total of 280,000 jobs being supported – a far cry from the almost 1.7 million back in May.

“We also note the reporting from RBNZ of 10,900 missed mortgage payments (outside the 61,000 mortgage deferrals) as at mid-August, which provides further reason to be cautious. However with the mortgage deferral programme being extended to the end of March 2021, and these missed mortgage payments not yet regarded as distressed or impaired, they are not cause for panic at this stage (and the number has been trending downward since May). 

“Finally, we also now have a later date for the General Election; however, with COVID remaining centre stage in the political landscape, housing policies have barely rated a mention for either of the major parties, so it’s unlikely the election will have any major impact on sales volumes or values in the lead-up to 17 October.”

Summary
The New Zealand property market is defying predictions for greater weakness as limited supply, alongside firm demand, is seeing values hold. With so much support guarding against forced sales and similarly assisting demand (including low interest rates and the temporary removal of loan-to-value ratio restrictions), this is likely to see recent trends continue. The key is understanding local differences, with international tourism hot spots such as Queenstown remaining particularly vulnerable.

Note: The CoreLogic HPI uses a rolling three-month collection of sales data through a range of sources (not only settled sales advised to council). This has always been the case and ensures a large sample of sales data is used to measure value change over time. This does mean the measure can be less reactive to recent market movements but offers a smooth trend over time. However, due to having agent and non-agent sales included, the index provides the most comprehensive measure of property value change over the longer term.