CoreLogic’s House Price Index (HPI), which is the most complete and robust measure of property value change in the market, today showed nationwide values increased by a further 1.8% over July.

This was the same rate of growth recorded in June, but down on both May (2.2%) and April (3.1%), and shows while we’re likely to be past the peak growth rate, a market this size can take some time to slow.

Evidence of the strong momentum in the market could also be seen in the latest RBNZ lending data where new residential mortgage lending remains elevated compared to the long-run average prior to the pandemic, which hit our shores in March 2020. The total value of new mortgage commitments in June 2021 was $8.5b, well above the two-year average to February 2020 of $5.6b.

Nick Goodall, CoreLogic NZ’s Head of Research says: “The exceptional rate of growth witnessed following the economic recovery after the pandemic-induced lockdown was not sustainable. However with an asset class the size of the residential property market, which now exceeds $1.54Tn and remains attractive due to still-low interest rates, any slowdown was destined to be gradual.

“Despite some investors unable or unwilling to remain active in the market, a strong pipeline of equity-rich investors, previously unsuccessful first home buyers and other owner occupiers who remained patient are now taking this opportunity to seize on low interest rates before they lift any further,” says Mr Goodall.

Analysing the CoreLogic HPI quarterly change in values, the slowdown becomes very apparent, with the nationwide growth figure dropping from 7.2% at the end of June to 5.9% at the end of July. This trend of deceleration is also clear across almost all main urban areas.

Property values in Gisborne increased by 2.1% over the last three months. This is the lowest quarterly growth rate since August 2020 (-0.2%) when uncertainty still remained regarding potential COVID-19 lockdowns, and is significantly lower than the 10.2% growth witnessed over the three months to the end of June 2021.

Other centres seeing a significant reduction in the rate of quarterly growth at the end of July include Kapiti Coast District (3.3%, down from 10.6% at the end of June), Rotorua (1.9%, down from 6.9%) and Napier (2.8%, down from 7.1%).

The only city to experience a lift in quarterly growth was Nelson, with 5.0% growth to the end of July, up from 4.8% for the three months to the end of June. 

Meanwhile the annual growth rate in Whanganui exceeded 40% at the end of July, the fastest rate of growth since September 2005 when the average value was $165,000. The average value now exceeds $500,000. While the quarterly change in values has started decelerating, the prolonged period of value increases over the past 12 months is still evident in the annual measure and current average value.

The 6.1% quarterly growth experienced in Hamilton is still strong, however it is a noticeable drop from the double digit increase in the three months to the end of June. 

Speaking on the main centres, Mr Goodall says: “The slowest rate of growth among our largest six cities was Dunedin with an increase of 4.5% in the three months to the end of July. Property values have more than doubled there in the last six years, rising from $296,000 in July 2015 to $646,000 today. However we’re starting to see sales turnover in Dunedin slowing, with 30% fewer sales in June 2021 than in June 2020. Meanwhile, sales transactions in all other main centres were at least on par with the previous year and in Hamilton’s case, up 19%. 

“This could be a reflection of the deterioration in affordability for property in the ‘Edinburgh of the South’. According to CoreLogic’s ‘years to save a deposit’ affordability measure, Dunedin has gone from being the most affordable main centre for new market entrants in 2015 to equal third with Hamilton, behind Christchurch and Wellington,” says Mr Goodall.

Dunedin is also bucking a trend seen over recent months of historically low listings. Mr Goodall explains: “Low listings can have a suppressive effect on sales volumes, however in Dunedin in July there were 21% more properties listed for sale than the same time in 2019, while all other main centres still remain at least 30% below levels seen in 2019.

“This is probably the strongest sign yet of a swing in demand and supply back towards the buyer, and with yields being squeezed by increasing interest rates alongside tighter investor regulation, it would be understandable if investors were calling time on paying the current prices being advertised.

“It’s these measures, alongside other economic indicators which could provide the best read on what values do throughout the rest of the year and into 2022. Expectations of a lift in the OCR are increasing every day, and while higher interest rates on their own don’t tend to cause values to drop, the RBNZ will be mindful of the potential impact to highly indebted recent buyers,” says Mr Goodall.

As the RBNZ carefully considers its upcoming OCR decision on August 18, Goodall says it may take some comfort in the resilience of the country’s housing values.

“With the market still growing, albeit at a slower pace, this may give the RBNZ a level of comfort to lift the OCR without major concern of it having too negative an effect on values. In conjunction with expected strong labour market figures due out on Wednesday, including a probable drop in the unemployment rate for Q2 to at least 4.5% (from the current figure of 4.7%), an OCR increase looks almost certain. The RBNZ longer term will probably be cautious of lifting too far too soon, and we expect they will take their time to assess how Q3 plays out before any big movements in spring.”

Highlights from the CoreLogic HPI for July 2021:

National and Main Centres

July HPI National and Main Centres

Provincial Centres (ordered by annual growth rate)

July HPI Provincial Centres