Overview

According to the CoreLogic House Price Index (HPI) for September, nationwide property values are showing signs of growth once again, increasing 0.8% over the month, after generally stalling since May. 

Index results as at September 30th 2020
Index results as at September 30th 2020

Property values have held firm through the worst of the economic downturn following the strict lockdown policies implemented in March.  The combination of low interest rates, access to credit and renewed confidence has seen demand hold firm.

Limited available supply, in the form of a low number of for-sale listings remains a key contributor to the property market’s resilience to lower values. Additionally, the absence of any meaningful lift in unemployment (yet) has minimised the number of urgent listings or strongly motivated vendors willing to discount their price.

Rolling change in property values, national
Rolling change in property values, national

The social restrictions placed on Auckland, and to a lesser extent the rest of the country, threatened to put a further dent in upcoming listings, however based on the trend in appraisals generated by real estate agents on CoreLogic platforms, the blip in activity in mid-August was relatively short lived and activity is now back to normal.

Main Centres

The lift in values witnessed at a nationwide level is generally also evident across each of the six main centres, with Tauranga the only exception, though the drop of -0.3% in September is very minor and essentially extends the recent trend of sideways movement in Tauranga since COVID hit (+0.3%).

House Price Index, Main Centres Relative to December 2003
House Price Index, Main Centres Relative to December 2003

Auckland’s stricter alert level status and subsequent reduction in economic activity provides a stark reminder we’re not completely out of the woods yet with the pandemic, and internationally we’ve seen the impact of subsequent outbreaks on economic conditions.

However property values in Auckland experienced a mini-uptick over the month (0.5%) – the first increase since the COVID-instigated weakness in the market. The rise in property values appears to be relatively broad based with 1.0% monthly growth in Waitakere (average value $864k) compared to 0.7% in both North Shore ($1.24m) and Franklin ($711k).

Broader Wellington is showing the greatest recent growth rate among our main centres at 1.1% over September, with Porirua in particular experiencing exceptional growth of 2.7% over the month. The one month measure can be relatively volatile here though, perhaps due to having one of the most socially diverse communities and property markets, and the three month change of 2.8% probably paints a more representative picture of recent market change. First home buyers and investors remain key players in the property market, while returnees have also shown a liking to Porirua.

Elsewhere the Dunedin market appears to remain constrained (+0.4% monthly), with values -0.9% down on their recent peak. The annual growth rate of 15.6% helps Dunedin stand out as an area of strength, however this figure needs to be put in the context of the recent peak rate of 21.1%, which helps to illustrate the significant loss of market momentum experienced in the student city.

Meanwhile Hamilton has shown some of the most consistent growth, leading to an increase of 3.2% over the last three months and a total of 9.7% over the last year – the highest annual rate since the middle of 2017. Investors are once again flexing their purchasing power in Hamilton, likely taking advantage of the temporary removal of the loan-to-value ratio (LVR) restrictions.

Values in Christchurch are also following a relatively consistent upward trajectory, albeit at a slower rate (0.7% quarterly growth), with the annual growth rate reaching its highest point (5.0%) since March 2015.

Provincial Centres

In the provinces growth is also the order of the month. This includes in Queenstown, where there are the first signs of a potential trough being found after values dropped away a total of 7.4% from earlier in the year. Queenstown values are now at a similar level to April 2018. 

Annual change in dwelling values, Territorial Authorities, Main Urban Areas
Annual change in dwelling values, Territorial Authorities, Main Urban Areas (*Average value at 30 September 2020 inside bar)

Meanwhile the Gisborne market has sprung into life, as mortgaged investors return to the fray – some no doubt taking advantage of the temporary removal of loan-to-value ratio restrictions. A 19% annual increase in rents alongside a fairly well insulated economy which is limited in its exposure to the COVID-19 induced recession will also be contributing to the property market resilience.

In Invercargill there are signs that the uncertain future of the Tiwai Point aluminium smelter may be weighing on values down south. A monthly change of -0.7% making it the only province to see a negative symbol in front of its percentage.

Value growth in Nelson (0.7% quarterly growth) and Napier (0.9%) appears to have waned a bit, but Rotorua (5.2%), Palmerston North (4.4%) and even New Plymouth (3.4%) have seen values go from strength to strength.

Outlook

Recently in their Monetary Policy Review, the Reserve Bank of NZ reiterated their commitment to keeping interest rates low and ensuring credit and confidence remain in the market. Economic forecasts remain tilted toward the downside, as unemployment is set to increase, now that the wage subsidy has ended and the mortgage deferral programme is being proactively worked out of the books.

The latest NZ Activity Index, produced by a number of government agencies, including Stats NZ and Treasury, gives us an earlier read on how the economy is performing and the figure for August was 1.4% down on the same month last year. Not necessarily a surprise given the social restrictions in place for most of the month, but a figure of caution as we look to the future.

And it’s a future of persistent uncertainty. International travel and therefore inbound holiday-makers, as well as foreign migrants, is a long way off, while exporters will also be feeling the impacts of the pandemic worldwide.  

The perceived safety of property, and availability of cheap money, appears to be protecting the property market from falling though. And so does the lack of stressed sales. All eyes remain on the labour market and unemployment data to see if that starts to change.

In the short term the General Election is another factor to consider, however with neither major party using housing policy as a core of their campaign, it is unlikely it will have much effect on the property market.

Overall, September was another month of resilience in the property market, with activity and values holding up, or even increasing further. The likelihood of rising unemployment is a factor to watch, but for now the key drivers remain ultra-low mortgage rates and the tight supply of available listings.

Note: The CoreLogic HPI uses a rolling three month collection of sales data. This has always been the case and ensures a large sample of sales data is used to measure value change over time. This does mean the measure can be less reactive to recent market movements but offers a smooth trend over time. However, due to having agent and non-agent sales included, the index provides the most comprehensive measure of property value change over the longer term.