Housing market conditions in Wellington have taken a sharp downturn, with residential values falling 1.3% in May which is in contrast to anecdotal evidence of a still strong market around the region. The drop is almost solely attributable to weakness in Wellington City, while values in Upper Hutt especially, continue to offset the broader declines, with values up 2.9% over the past three months.

The slower rate of headline growth has been heavily influenced by a faltering upper tier of the market (above $850,000). Annual growth in this value range has been limited over the last year (0.7%), while the mid-range ($650,000- $850,000) grew by 7.1% over the same period. The lower end, properties below $650,000, saw relatively restrained annual growth of 2.5%.

Elsewhere, Tauranga also recorded a drop in housing values over the last three months (-0.9%), however, Hamilton’s sideways movement in May meant values remain 1.0% higher than they were in February. Both Auckland and Christchurch continued an extended period of minor fluctuation, resulting in no effective change in the last three months

CoreLogic Index Results May

Index results as at May 31, 2018

The highest annual rates of growth remain in many of the regional markets, however as flagged last month these rates of growth are slowing here too. CoreLogic head of research Nick Goodall said, “The value growth witnessed in these centres over the last few years were unlikely to be sustained with local economies struggling to keep up with demand. While first home buyer activity has been strong in many of these centres recently, a lack of housing at affordable price points may now be starting to bite here too.”

CoreLogic Rolling Change
Rolling change in property values, national

Across the other Main Urban Areas, again, the strongest performing city is Napier. However, the annual growth rate did slow, from 17.6% in April to 16.3% in May. Movers, both from outside the area and internally are a primary driver of housing demand, as jobs remain available and the lifestyle appeals to a broad cross section of the market. Investors, particularly those not requiring finance also remain undeterred by an otherwise slowing market nationwide. Nearby Hastings has seen a similar slowdown (from 12.5% to 10.7%) but remains in the top five centres for growth over the last year.

The wider Hawke’s Bay property market has been underpinned by robust economic conditions, with tourism and the horticulture/wine sectors remaining strong. Higher property values have triggered new construction, which is also supporting labour markets, income, and consumer spending.

Whanganui was another area to see further growth in May, with quarterly growth hitting 5.0%, the strongest rate in a year. Property turnover has remained relatively strong here, at a time when many other areas are seeing activity fall away. Mr Goodall said, “Investors in particular remain an active presence, perhaps taking advantage of the lower average value of properties here ($249k). However this can sometimes be cause for concern, as investors chase capital gains, and may not account for the increased cost of lower valued properties/areas, such as higher maintenance and increased risk of vacancy.”

CoreLogic Annual Change

Annual change in dwelling values

Meanwhile the growth rate in New Plymouth has stabilised, with Nelson showing the weakest capital gain profile. Values in Nelson are down 1.3% over the last 3 months – which is the first quarterly drop in values witnessed here since February 2015. Movers are typically the most active buyer type here, the large majority of which are local, so it’s likely that with credit lines drying up, these less necessary moves have reduced. Movers from Auckland make up about 3% of all sales each quarter (and have done since 2016), an increase on roughly 1.5% prior to that. The greatest source of out-of-region movers in the last decade were from Canterbury when, following the 2010-11 earthquakes, almost 6% of sales went to fleeing Cantabs.

CoreLogic Annual change in dwelling values

Annual change in dwelling values, Territorial Authorities Main Urban Areas

Overall, Mr Goodall said that the New Zealand property market was in a relatively stable position, as summarised by the Reserve Bank of NZ (RBNZ) in their latest Financial Stability Report “Bank lending standards have tightened which has reduced credit growth”.

Goodall says “The RBNZ remains weary of a resurgence in house prices however, especially given household debt levels remain high, and their decision to leave the LVR restrictions unchanged for now illustrates their caution of the market and the reliance on banks maintaining their prudent mortgage lending standards.”

On the plus side, NZ Banks have reduced their exposure to international risks, which reduces the likelihood of a large hike in mortgage interest rates any time soon, which could ultimately affect those households with high debt levels.

In summing up, Mr Goodall said “given affordability pressures caused by rising values and restrictions on finance, the mini-revival in property values in the early part of the year was always likely to falter at some stage. This was evident in Wellington City in May. By contrast, property remains more affordable in Dunedin and it will be interesting to see if value growth continues.

Among the many interventions either applicable or on the horizon, the Healthy Homes Guarantee Bill remains of chief concern down south as the quality of rental properties in the student city remains questionable”. In all likelihood we’ll also see a reduction in activity in Dunedin, as with the rest of the country, as the downward pressure of reduced immigration, unavailability of credit and a more closely scrutinised investment market takes its toll.