According to the CoreLogic QV February 2020 House Price Index results out today, the average value of property across New Zealand rose by 1.1% over the month, taking the three-month change to 2.6%. The average home is now worth $722,475 – up by 5.3% from a year ago, or more than $36,000. The annual increase of 5.3% was the highest since August 2017 (6.9%).
Property values are rising steadily across each of the main centres with the gains over the past three months ranging from 1.0% in Tauranga up to 5.4% in wider Wellington (measured across the City, Lower/Upper Hutt, and Porirua). The recent momentum that has built up in Auckland and Christchurch (after previous long periods of either stagnation or mild falls) has also rolled on, with gains in the three months to February of 1.8% and 1.5% respectively.
For the main centres, Dunedin continued to lead the pack with an annual increase in February of 18.1% (or more than $81,000). Given that the annual growth rate in Dunedin was 20.8% in January, some may suggest the growth rate has peaked, but according to CoreLogic Senior Economist, Kelvin Davidson: “Be wary of that view.
“For a start, last February, property values in Dunedin spiked higher. This means that the mathematical ‘base effects’ were always going to pull down the annual growth rate this February. Moreover, on the ground, the evidence suggests that demand remains strong in Dunedin, set against a still-tight listings supply.”
Davidson added: “The latest CoreLogic/QV results confirmed that the property market upswing rolled on in February, with the continued gains in values coming alongside rising mortgage lending activity, increased sales volumes, and falling days to sell. In these conditions, it was perhaps inevitable that buyers would feel a growing sense of urgency as the dreaded ‘FOMO’ (fear of missing out) reared its head, and market observations in recent weeks suggests this is already happening.”
Davidson said: “Clearly, buyers are still finding value around many parts of ‘regional NZ’. However, every month where property value growth remains above income growth, the affordability position for would-be buyers just gets that little bit worse. These pressures have already become more prominent in Nelson and Napier, as examples, and these two areas have accordingly seen value growth cool in recent months.”
Whangarei and Queenstown are other examples of markets where an affordability barrier seems to have been hit over the past 3-6 months. Whangarei’s average property value was up by less than 4% in February and Queenstown only saw a rise of 0.7%. Both these markets have seen the presence of first home buyers wane over the past 6-12 months, which is also consistent with the sense that taking that first step on the ladder has become much more difficult.
The fundamentals for the property market are solid for now, but we also need to take account of the possible impacts from the coronavirus. Clearly, this is a human disaster, and the economic and property effects are secondary. However, the financial effects can’t be ignored either, and a potential rise in unemployment (stemming from exporting sectors such as tourism, forestry, and seafood, as well as manufacturing activities that have had their import supply chains disrupted) would dampen property demand and values. Local markets that may be more vulnerable than others from this possibility would include Rotorua and Queenstown.
Davidson noted: ”We shouldn’t get too downbeat about the property market. A weaker economy could see a cut to the official cash rate, helping to keep mortgage rates low. Secondly, we may see more residents choose to stay in NZ rather than venture out into the world, as well as more foreign migrants potentially choosing to come here – and a higher net migration balance would tend to lift property demand. The recent sharemarket gyrations won’t do much to raise New Zealanders’ low confidence in that asset class either – potentially pushing more equity towards property.”
**average value at 2 March 2020