The QV House Price Index stats are out for December and what most stood out for me was the drop in value month-on-month for 12 of the 72 cities/districts nationwide, perhaps most notably in Auckland as well as in Hamilton.

Upon reflection however, this stat isn’t completely surprising for two reasons. Firstly, we’d already seen a cooling off in the previous months - Auckland’s annual change had dropped from 15.9% in August to 12.8% in November, and to the latest figure of 12.2% in December. Hamilton’s annual change had dropped from 31.5% in July to 23.1% in November, and now 20.4% in December. Secondly, we’ve seen the impact of previous LVR limits over the Christmas period before: after the original restrictions in late 2015 required a 30% deposit for investors in Auckland, values dropped 0.8% from December 2014 to February 2015.

So this is nothing new, but after the small drop over 2015/2016, values in Auckland grew 9.2% over the subsequent six months to August 2016.  Are we likely to see a rebound in values this time? In all likelihood I’d say yes - we’ll see a similar, if slightly more subdued, trend emerge this year.  

While some potential buyers have been affected by the latest LVR limits, it doesn’t appear to have been enough to significantly reduce competition for the limited number of properties that are available.

Also, rising mortgage interest rates may reduce the total amount that people can borrow (and therefore pay), so this may have more of an effect on rising prices, hence the growth being more subdued. In the end though there’s still a demand/supply imbalance with new construction improving slowly, and net migration picked to stay in the large positives for the foreseeable future.

It’s also important to remember that at the same time as tightening the LVR limits for investors, the Reserve Bank also reduced the amount of high LVR loans that banks were able to offer to owner-occupiers.

This has led to a drop in activity across the board. Sales volumes in late 2016 across all six of the main centres are down on the same period for 2015 and there’s been no major change in the mix of buyers in the market according to our nationwide Buyer Classification series. Investors continue to pick up roughly 40% of sales and first home buyers 21%. Other owner-occupiers (those moving between homes) did dip away slightly at the end of the year – going from 27.7% of sales in Q3 to 26.2% in Q4 – perhaps holding back due to increased uncertainty in the market.

This share between investors/first-home buyers/home movers does vary by location. Auckland investors finally ventured to Dunedin, but not exactly en mass. They accounted for 5% and 4% of sales in Q3 and Q4 respectively – up from a recent average of 3%. Otherwise the Dunedin breakdown looks similar to the nationwide picture, with other investors picking up 36% of sales in Q4 and first home buyers accounting for 22% of sales.

In Christchurch, first home buyers have found their way back into the market as value growth remains flat (-0.3% quarterly growth), picking up 23% of sales in Q4 2016, an increase from only 19% two and a half years ago. Investors still remain strong here however, buying 43% of properties sold in Q4.

In the Wellington region we get the first real point of difference as first home buyers go from strength to strength – to the point where 31% of sales in Q4 were to this group of buyers. Both investors (36%) and owner-occupiers moving house (20%) picked up a lesser share of sales between Q3 and Q4.

Investor presence in Tauranga remains very high, accounting for 46% of sales in Q4, with almost one in four of these investors based in Auckland. Owner-occupiers moving house also favour the Bay with roughly 30% of sales to these buyers and a third of these from Auckland. First home buyers are less prevalent here, accounting for only 16% of sales in Q4.

Hamilton has also been attractive to Auckland investors but their activity has reduced throughout the last 18 months – from 17% of sales in Q3 2015 to just 11% in Q4 2016. Other investors (36%) take total investor purchases to 47%, with first home buyers (22%) and owner-occupiers moving house (21%) having a similar share of the remainder of sales in Q4.

Back to the Super City, where investor purchases have plateaued at 43% as first home buyers (21%) still find a way into the market despite excessive prices. Owner-occupiers moving house have slightly reduced their activity in the market, accounting for 23% of sales in Q4 2016.

One final point of note as we kick into the New Year is that the total value of all residential property in NZ hit quite the milestone last month – now totalling over 1 trillion dollars. You could argue it’s just a number, but it is a bloody big one! 

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