While most of us will have enjoyed at least a few days break towards the end of last year, the property market doesn’t appear to have taken a back seat, with values continuing to grow off the back of an already strong spring selling season.
According to the CoreLogic QV December 2019 House Price Index, property values rose by 0.9% over the month, with the annual rate of growth increasing to 4.0%. That’s up from the 2.0% lull in June 2019, and the strongest annual growth figure since September 2017 (5.0%).
In fact, the quarterly rate of growth for the last three months of 2019 was 2.7%, which was the largest quarterly increase since November 2016 (3.9%). This was the point at which the Reserve Bank of NZ (RBNZ) made its final round of tightening of the loan to value ratio (LVR) restrictions, most significantly requiring residential property investors to have a 40% deposit for new loans.
Since the end of 2016 the RBNZ has been through two rounds of easing of the limits, however opted against a third in their most recent Financial Stability Review, partly due to the recent resurgence in the property market.
At the heart of the recent acceleration in value growth across the country is the recovery of property values in Auckland. Quarterly growth of 1.9% to close out the year was the strongest rate since November 2016 (consistent with NZ performance above). This has taken the average value of property in our largest city to $1.047m, just shy of the figure for the same time the year before ($1.048m) and reflects the value erosion from the beginning of 2019 being made up in the second half of the year.
CoreLogic Head of Research, Nick Goodall said “The end of 2019 saw a couple of high profile releases (bank capital requirements and LVR rules) from the Reserve Bank and ultimately they took a conservative stance with each of them. The resurgence in property value growth in the second half of the year, in conjunction with a lift in investor activity and lending, was enough to see the RBNZ take a ‘wait and see’ approach to making any changes which could accelerate further growth (and reduce financial stability). With this most recent data now available it appears that was a wise decision.”
“The solid, if unspectacular, economy, persistently low unemployment and low interest rates, both actual and serviceability rates, alongside a historically low advertised stock levels continues to contribute to a demand/supply imbalance”.
This is particularly true in Dunedin where growth in property values shows no sign of slowing down. Indeed, you have to go back almost 15 years (September 2005) to find a time when property values grew at a faster annual rate than we saw over the last 12 months (18.3%).
As noted last month, the average property value in Dunedin now exceeds that of Christchurch which is a much larger city - although we must also recognise the significant change across Christchurch and the wider region following the widespread damage caused by the earthquakes from almost a decade ago.
A significant and consistent lift in new residential dwelling supply has provided a much more balanced property market in the wider Christchurch area. This is especially the case when compared to Dunedin, where a strong local economy and persistent lack of property supply continues to translate to rising values.
Around the other main centres, Wellington is another market to have finished the year strongly, with 4.4% growth to close out the final quarter. As was the case throughout 2019, the outer cities of Porirua and Lower and Upper Hutt experienced greater growth than Wellington City, however values in the Capital also took off after a lull for much of the middle part of the year – values increased 3.5% in the final quarter of 2019.
Meanwhile the lower value (average value under $400k) provincial centres continue to experience higher rates of growth than their more expensive equivalents, as affordability pressures start to impact the potential buyer pool, and where local economies and incomes cannot sustain the significant growth witnessed in the last 4-5 years.
Goodall said “While we’ve seen a resurgence in property values in our larger centres, we are starting to see a slowdown in some provincial cities as recent rates of growth can’t be sustained with consistent demand.”
“First home buyers remain active, and there has been a re-emergence of property investors, as their confidence in the market returns, however in some smaller areas the perception of value is starting to wane.”
“The reduction in mortgage serviceability rates in the second half of the year has prolonged the growth phases for these centres, however without continued growth in population and jobs (and incomes) future growth will be limited.”
Overall, Mr Goodall said there weren’t too many surprises in the latest CoreLogic QV House Price Index data for December. Market conditions remained stable and hence property value growth continued along its recent trajectory. 2020, for at least the first half, is likely to hold much of the same.
As Goodall notes: “As we all return to work, many people may be looking to evaluate their financial situation and plans for the year. Property investors appeared to end 2019 in a relatively buoyant mood and we expect them to kick into 2020 with the same energy.”
“What could make things interesting is the General Election scheduled for later in the year. Typically this creates uncertainty for the property market, however with a more comprehensive Capital Gains Tax (CGT) ruled out from both major parties there could be less nervousness among property investors than we’ve seen in the past when a potential CGT lingered.”
“The finance industry remains another key influence, both in the form of regulatory influence from the RBNZ and credit conditions and competition from the banks themselves. For now there doesn’t appear to be any major change on the horizon, so it’s very much business as usual for borrowers. And this means further growth in the property market.”
*Provincial centres = Whangārei , Rotorua , Gisborne, Hastings, Napier, New Plymouth, Whanganui, Palmerston North, Kapiti Coast, Nelson, Queenstown, Invercargill.