COMMENT: Dunedin’s slowdown might last

CoreLogic's Kelvin Davidson

After a large boom in the past four to five years, Dunedin’s property market has lost momentum since April, with property values really only treading water.

Time on the market has lengthened lately and the increased presence for investors may be leading to some harder bargains being driven when it comes to buyer offers.

It seems unlikely that Dunedin values are about to fall sharply, but the reduction in affordability over the past five years may mean that future growth is held back.

Dunedin’s property market has been on a long upswing – average values have risen by 81% in the past five years (a rise of almost $245,000) – but it’s noticeable that there’s been a loss of momentum since Covid-19 hit.

Indeed, having broken through $550,000 in April, Dunedin’s average value has basically stood still for the past five months.

Similarly, although sales volumes have rebounded from the Covid-induced lull in April, the rise has been smaller than other main centres.

So what’s going on and what might the future hold?

First, it shouldn’t be a major surprise that Dunedin would see a slowdown at some stage.

After all, the large rises in property values since 2015 have seen a decline in housing affordability, especially on the value to income ratio. But also when assessed by mortgage payments as a percentage of average household income,

Even despite the falls in interest rates in recent years, mortgage payments currently absorb 32% of average income in Dunedin, up from 27% five years ago.

The key point is that reduced housing affordability tends to act as a long-term restraint on the property market.

Some of the timelier data for Dunedin has also turned a little. For example, after reaching a new low of just 21 days in early 2020, the median time to sell has since risen back to around 29 days.

That remains relatively low, both for Dunedin historically and in a current national context, but the direction of the trend is still, nevertheless, upwards.

Longer selling times hint at a shifting supply/demand balance of power, with any caution from buyers helping to explain flatter values of late.

It’s also interesting to note that mortgaged multiple property owners (ie: investors) have overtaken movers and first home buyers in terms of their share of property purchases in Dunedin so far in 2020.

To be fair, this isn’t fresh news and it’s also been replicated across many other parts of New Zealand.

Even so, a greater presence for mortgaged investors could mean a “harder nosed” approach to buyer pricing/offers, also helping to explain some of the recent softening in value growth.

Overall, although they’ve lost a bit of momentum lately, it’s too early to conclude that we’re about to see property values in Dunedin go into reverse.

After all, like everywhere else around New Zealand, low listings and cheap mortgages are strong driving factors for the property market at the moment.

However, there is the possibility that some Dunedin investors look to “lock in” their capital gains by now selling a property or two (thereby potentially helping to alleviate tight listings).

And this, along with the reduction in affordability over the past five years or so, means it is conceivable that property values there will experience slower growth over the next few years than other parts of the country.