Future shocks could rattle Capital

The heady days of Wellington's market could be nearing an end

There has been much speculation of late about whether or not New Zealand’s housing market is teetering on the edge of a crash because of its recent skyrocketing house price inflation.

But according to Wellington agency Tommy’s Real Estate there is little chance of a substantial fall in house prices in the country’s Capital.

Tommy’s managing director David Platt said the Wellington housing market will remain buoyant as it hasn’t seen the highs and lows that Auckland’s experienced.

This should provide Wellingtonians with comfort that they will be insulated to a degree from any future readjustment to the house prices, he said.

“More importantly, the key factors that drive the housing market suggest that Wellington has a degree of immunity to a marked decline in house prices.”

Those factors include strong economic growth; falling unemployment; more people moving to Wellington; and the likelihood that supply will be constrained for some time due to capacity and developer financing issues.

Further, most properties are being sold to owner occupiers who are already living in Wellington, according to Platt.

“We have seen a sharp decline in out of town investors over the last three months while local investors are reasonably stable at around 20% of sales.”

However, the latest QV data suggests that, as with other markets around the country, the heady days of Wellington’s housing boom might be over. 

At the same time, it shows that, over the last year Wellington values increased by a dramatic 20.4% to hit $607,907 - which leaves some room for price readjustment if the market does stumble.

QV’s Wellington valuer, David Cornford, said the Capital’s market remains buoyant but there are signs that it is losing some steam as winter approaches.

“There is less market activity, a decrease in the number of sales and less buyer demand compared to the previous 12 months.

“This has led to the rate of value growth plateauing or even slightly decreasing.”

Cornford said good prices are still being achieved, but the market is less frantic and properties with undesirable features are now sitting on the market for longer.

Other commentators have even less faith that the recent strength of the Wellington market is sustainable.

Property Institute chief executive Ashley Church believes that the Wellington market is at more risk of a crash than the Auckland market.

He said that, in many ways, Wellington is a more speculative market than Auckland.

“That’s because the Auckland market is being fuelled by a significant lack of supply at a time of very high population growth.

“Whereas the Wellington market simply doesn’t have the same pressures as Auckland, or even Hamilton or Tauranga.

“Rather the demand in the Wellington market is being driven by people, including investors, wanting to buy more affordable properties in a place which is currently seeing price growth.”

As long as this situation continues, there will continue to be some pressure on prices, Church said.

“But the question is how long it will last? It could change due to a spike in interest rates or because it becomes easier to buy property in Auckland or any number of other surprises.

“And once things change the Wellington market is likely to flatten out dramatically.”

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