Values settle into new normal

Wednesday 8 July 2020

Covid-19’s impact on the residential property market is becoming clearer with QV’s latest data showing the pre-lockdown heat is dissipating as the market begins to settle.

By Miriam Bell

To date, the market has bounced back from the Covid-19 crisis strongly, with the real estate sector reporting listings are back close to normal winter levels and banks reporting strong enquiry levels from potential buyers.

The QV House Price Index shows that all but two (Queenstown and Marlborough) of the 16 major cities monitored saw some growth in their average values over the past quarter – although the growth was largely moderate.

Tauranga was leader of the quarterly growth pack with 2.8%, followed by Invercargill and Napier (both with 2.6%) and Whangarei (with 2.5%).

But the QV data also reflects a gradual decline in quarterly growth in June, with 13 of the 16 cities monitored showing a reduction in the rate of growth since May.

That means that while the average national value increased by 1.3% over the past quarter, that’s down from 2.4% in May, which leaves the average national value at $738,018.

This represents an increase of 7.4% year on year, but it’s slightly down on the annual growth of 7.7% recorded last month. 

Of the major cities, the Auckland region’s values increased by 5.4% year-on-year and by 1.5% over the last quarter, leaving the region’s average value at $1,082,541. By comparison, the region saw 2.7% quarterly growth and 5.4% annual growth in May.

QV general manager David Nagel says the data indicates the heat that was seen in the market pre-lockdown is gradually dissipating as the market begins to settle.

The resilience of the New Zealand economy as well as the property market has surprised many commentators, no doubt assisted by the country’s rapid return to a new normal, he says.

“But with government wage subsidies ending in September and many homeowners that sought relief from banks with mortgage holidays likely to feel some financial pressure heading into summer, the worst is still ahead of us.”

Nagel says they are seeing some early signs of value stress in Queenstown with values declining by 1.5% in the three-month period to June. 

“This is the first fall in quarterly values for a major urban area that we’ve seen this year… This is not unexpected given the heavy reliance on tourism and short stay rental accommodation in this location.”

Going forward, market resilience will be reliant on returning Kiwis feeding demand as both buyers and tenants, as well as grounded Kiwi’s unable to embark on their OE helping to fill the void of migrants coming into the country, he adds.

“Our earlier projections that the market will experience a correction of 5-10% by Christmas time from the pre-Covid high of January to March 2020 is still looking likely. 

“While some parts of the country will be harder hit than others, any fall in value should be put into context. Most parts of New Zealand have experienced value growth in  excess of 5-10% in just the past 12 months, so for those that can weather the storm, this is simply a passing aberration.”

For CoreLogic head of research Nick Goodall, the impact of the Covid-19 pandemic and ensuing economic shutdown on the market is starting to show.

Nationwide property values dropped -0.2% and were down in four of the six main centres according to QV’s latest monthly reading, he says.

“Looking at market activity, both listings [up] and demand to buy [high], we appear to have returned to a level of seasonal normality… Expectations are for the usual winter lull to gradually kick in.”

But Goodall says while the cushioning impact of Government and bank support appears to have been successful so far, they know the full impact of the recession on the labour market is yet to come.

“So the focus of attention remains on the next few months, as homeowners roll off adjusted loan payment plans and the wage subsidies end (just announced to be 1st September).”

While the lift in market activity is providing more clarity on where the market stands, they remain cautious about what the rest of the year could bring for the market, with many forks in the road to come, he adds.

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