According to the  CoreLogic QV January House Price Index results, property values in New Zealand have grown by 0.9% since October, a slight slowdown from the figure of 1.2% in the previous three-month period. The annual growth rate also slowed, from 3.2% in December to 2.9% in January - not a large dip according to senior property economist Kelvin Davidson, regardless, it took the rate down to its lowest level since February 2012 (2.7%).

Index results as at 12 February 2019

Also worthy of note in January was another small drop in the Auckland index - the 0.2% dip resulted in a minor 0.1% fall for the three month period as a whole, but more notably, a 0.9% decline over the year. Davidson said, “Once again, this illustrates the problems of low affordability in Auckland and the restrictions on lending, with plenty of listings available on the market also giving prospective buyers the chance to shop around.”

The subdued property market conditions that we saw heading into Christmas have pretty much stayed in place in January.

Rolling change in property values, national

“Over this holiday period, the market is always characterised by low volumes, which means caution needs to be taken when interpreting price data. Any influence of the foreign buyer ban is another factor to keep in mind.

“Jumping to any conclusions about Auckland’s property market having entered a new weaker phase wouldn’t be advisable. After all, many solid foundations remain; an ongoing shortage of property (albeit with a reasonable amount of choice amongst the stock actually on the market), low mortgage rates which are unlikely to rise significantly in the near term, the loan to value rules have been relaxed mainly for owner-occupiers, and most people are in work.”

Davidson adds: “For Auckland, and the market as a whole, the looming tax ring-fence for rental property losses and speculation about a future capital gains tax system are some of the current headwinds. To my mind, with one month of the year now gone, the prospects for 2019 haven’t changed - it’s a balanced outlook, with overall volumes set to be similar to 2018 and value growth generally continuing to be constrained.”

“The latest results confirm that within Auckland, albeit a very broad generalisation, shows that it’s been the cheaper west and south that have fared better recently, with the more expensive north and east softer. For example, Manukau North West (current value of $785,644) has seen values rise by 1.2% over the past year, with Manukau Central also edging up, by 0.4%. By contrast, North Shore City (value of $1.2m) has experienced a 2.2% drop since January 2017. Auckland City, where values are also $1.2m, has dipped by 0.9%.”

Moving down to Hamilton, the slightly inconsistent growth patterns that were evident throughout 2018 have continued on into January. A pretty decent monthly gain of 1.1% in January alone saw the annual rate rise from 5.0% to 5.9%, continuing the rebound after the drop to 4.0% in November.

Tauranga has moved similarly to Hamilton lately, with very little smoothness in its growth path for property values. After rising from 3.0% annually in October to 3.9% by December, growth dialed back again in January, to 3.3%. That was despite an increase of 2.0% in the most recent three months.

Davidson said, “That shared, ‘bumpy’ experience for Hamilton and Tauranga in recent times is despite significant differences in their economies and property markets. Hamilton has its base of professional services and the activity that arises from the needs of the agricultural sector, while Tauranga is more about the port, tourism, and horticulture as examples.”

“In the property market itself, our CoreLogic Buyer Classification data shows that Hamilton’s activity has recently been dominated by ‘mortgaged multiple property owners’ (MPOs i.e. investors) and first home buyers (FHBs), groups who are amongst the most keen to drive a hard bargain. Whereas in Tauranga, movers (i.e. existing owner-occupiers) account for the most activity, with their larger equity base recently contributing to values now being higher than $720,000 in the city and rising out of reach for some other locals. With affordability stretched, this may be prompting a bit of volatility in values from month to month.”

House Price Index, Main Centres Relative to December 2003

Around the wider Wellington property market, a ‘mixed bag’ is a fair way to describe recent patterns. Porirua (1.1% quarterly rise and 6.7% annually) and Wellington City (1.0% and 7.0%) remain pretty consistent areas in terms of value growth, but the Hutt Valley is showing some contrasts. In the cheaper Upper Hutt market (average values of $532,632), there’s been a spike of 5.3% since October, seeing the annual growth rate accelerate to 13.2% in January. By contrast, Lower Hutt has stalled lately, with values basically flat since October (albeit still up by 9.0% over the past 12 months).

In Christchurch and surrounding areas, the story remains generally flat for values, as supply rises to meet demand. Since October, the city’s values have risen by 0.8%, leaving the annual rate at a modest 0.6%. Banks Peninsula is a small pocket of relative strength, with values up by 3.4% since January 2017. Around the rest of Canterbury, it’s pretty typical for values to have risen more modestly, by about 2% over the past year.

By contrast, Dunedin’s market remains vigorous. With demand robust and the number of listings on the market low, values have risen by 2.9% since October and 11.1% over the past year – to now stand at $436,208. The growth is pretty consistent across all parts of Dunedin, with the active buyer groups – FHBs and mortgaged MPOs – clearly finding good options in most if not all suburbs.

Annual change in dwelling values Provincial Centres*

Around the rest of the country, it’s the same old story – some markets running strongly and some fading to the back of the field. In New Plymouth, for example, momentum eased in January and values are now only 4.4% higher than a year ago. In the middle of last year, those gains were closer to 7%. Rotorua is another market that has seen momentum fade in the last few months.

But as a contrast, Napier has perked up lately, with values in January 4.3% higher than in October. Annual growth in Napier has bounced back up to 11.3%, with values at $538,635. Property values continue to rise at impressive rates in Whanganui (15.0% annually), Palmerston North (13.2%, on the back of a gain of 3.8% in the three months to January), and Invercargill (12.2%).

In tying all of this together, Davidson said: “In the current market, where banks are cautious about lending and with a lingering general sense of uncertainty, it’s no surprise that overall volumes are at historically low levels or that the January House Price Index shows continued  inconsistency in value growth across areas and from month to month within areas.

We’ve always thought that 2019 could basically be 2018 on repeat and although it’s obviously early days, that’s how things have played out in the first month of the year. The Government  will soon come into focus as a key player in the property market’s fortunes, with the Tax Working Group’s recommendations about NZ’s tax system in general – and capital gains tax in particular – being  released on February 21st.”