The latest monthly QV House Price Index shows definite signs of value increases slowing down.

As a quick reminder of where we have come from: just a few months ago, almost every town and city in NZ was rising in value. Auckland had seen a brief dip late last year as the previous round of lending restrictions dented things slightly, but this year, Auckland had then surged away again as had Hamilton and Tauranga and more recently Wellington. 

The continued increase in values and the dominance of investors was partly why the Reserve Bank introduced new loan restrictions, announced with immediate effect in Late July 2016. Those restrictions were two-fold: investors across the country now needed a 40% deposit and banks were also restricted, with any new lending to low-deposit customers only allowed at 10% of the bank’s new lending portfolio. An intentionally tough environment all round. 

In response to those new lending restrictions, we have seen signs of heat coming out of the market.

  • The level of demand from potential buyers (measured by banks running online valuations on their behalf) showed a much weaker level of buyer enquiry in the weeks following the announcement.
  • The number of new listings coming onto the market was also very weak during August and September.

Both buyer demand and new listings should have been surging ahead in a normal Spring pattern, so their weakness suggests people either couldn’t (or didn’t want to) buy or sell property.

What we have just begun to see in our data was the first signs that both investor activity and value increases were beginning to waver. Yet more evidence that the lending restrictions were hitting the mark.

The latest figures from QV are more evidence of that value growth slowing, but let’s be very clear: we aren’t talking drops in value. At least not in this QV index, which looks at sales over the past three months.  I’m not looking for drops in the index. I am instead looking for where the increase is slowing. Think of getting to the top of a steep hill: as you near the top, it starts to get less steep until eventually you reach the very top where it is flatter. That’s what I’m interested in.

I have done that by looking at the monthly increase between September and October, compared to the monthly increase between August and September. Wherever the increase was less last month than the month before then we have signs of a slow-down. 

By that measure, 61% of the country is slowing down.

Throw that same information at a map and a few geographic patterns emerge. Main Centres up first: all of them have slowed.

Wellington has attracted headlines suggesting it is ‘the new Auckland’ even though increases in value over the past year of 21.1% are much less than Tauranga and Hamilton. But in these latest numbers Wellington takes the biggest hit of all the main centres, with the rate of increase in values in Wellington City slowing from 2.8% a month ago to 1.4% last month. Lower Hutt slowed from 4.2% to 1.6% and Upper Hutt from 3.3% to 1.0%. Porirua bucked the regional trend, rising 2.5% per month to 3.7%.

Auckland is a bit patchy with a couple of highlights being North Shore slowing from 2.1% per month to 1.0% per month while Auckland Central stayed at 1.2% per month.

Christchurch also slowed but was the least hard hit, the rate of increase going from 0.6% per month to 0.5% per month.

Regional trends differ across the country also. Most of the top half of the North Island is slowing, exceptions being Waikato and South Waikato Districts, Western Bay of Plenty, Kawerau, and Otorohanga. They are all small areas so results should be treated with caution. Rotorua is the only town of significant size that has accelerated.

In the rest of the North Island, Taranaki continues to accelerate.

South Island’s turn now: Nelson gained pace, as did Christchurch’s neighbours Selwyn and Waimakariri. The West Coast of the South Island is one of the only parts of the country to be actually dropping in value, but that pace of decline slowed in the past month.

OK, so values are slowing. Is that the last piece of the puzzle in confirming whether lending restrictions have done the trick? Well, it would be if demand and listings hadn’t rebounded.

Just in the last few weeks new listings and demand have suddenly surged upwards and what was looking like a very sad Spring is now beginning to look a bit healthier. A surge in new listings increased choice for buyers will theoretically ease upward price pressure. An increase in demand as seen in people visiting their bank doesn’t mean that will translate to actual sales, despite the fact that it has always done so in the past. The game is different now.

The volatility in these various market measures suggests to me that the dust is still settling. I still expect many people to hold out until well into the New Year to assess the state of the market.

That said, prediction in this market is a near impossibility.

New Zealand Regional Maps