House price rises waning amid tighter lending coming

CoreLogic’s House Price Index (HPI) says this was down from August price increases (1.6%) and is the fifth consecutive month of easing growth rates.

The HPI shows the average value of houses countrywide increased from $937,148 at the end of August to $$950,229 at the end of September. These figures are based on sales over the previous three months.

In the Auckland region the average house value rose more than $9,000 to $1,346,964, in Wellington region average values rose to $1,082,993 and in Christchurch to $666,371.

With most of the country, aside from Auckland, at alert level two for the majority of September, market activity has started to return, says Nick Goodall, CoreLogic’s research head.

However, the three weeks at alert level three or above – as well as movement restrictions in place during alert level two – means the return has been gradual and subdued.

“While this time around agents were better prepared and experienced in how to carry on throughout lockdown, the limitation of movement and social interaction undoubtedly disrupts the property market temporarily.”

Agent activity

Tracking of appraisals generated by agents shows activity has returned to a similar level recorded prior to the August 18 lockdown.

“Considering Auckland remains at the very restrictive alert level three, this lift in appraisal numbers demonstrates a significant return to action from agents outside Aotearoa’s largest city,” says Goodall. 

“While this is encouraging news and indicated the potential for new listings, the lockdown will continue to have a persistent dampening effect on overall stock levels, which are already at all-time low levels.

“In the short term this lack of available supply might lead to some upward price pressure, especially when combined with pent-up demand from people browsing listings portals through lockdown and evaluating their housing needs and wants.”

However, he says this pressure is unlikely to linger too long.

Market factors, including stretched affordability and changes in credit conditions such as tighter loan to value (LVR) controls and rising interest rates are likely to impact the number of potential buyers in the market.

“Investors are facing a much more regulated market and owner-occupiers are about to have LVR restrictions further tightened – officially from November 1 – which will impact first home buyers the most,” he says.

“Given affordability measures are already showing debt to income ratios at all-time highs, and with interest rates now on their way up, fewer people will be able to borrow the amount of money required to satisfy vendors’ expectations.”

In the regions

Property values in Rotorua rebounded (1.9%) in September after falling -0.9% in August, however the average value of $656,000 in the Sulphur City is down -2.4% over the last three months.

Meanwhile the monthly rate of growth in Gisborne dropped into the negatives (-0.7%) for the second time in four months, leaving the average value of $595,000 up only 1.6% for the last quarter.

A noticeable bounce in performance in Queenstown (9.1% quarterly) has taken the average value to almost $1.5 million.

This rate of growth is the strongest since June 2016 and takes the annual increase to 30.4% – a $347,000 rise since October 1, 2020.

The quarterly rate of growth in Hastings has also accelerated, up 8.3%, taking the annual change to 41.4%, by far the largest rate of growth on record for the city (back to 1990).

Volatility is evident across the main centres, too. Hamilton which experienced a decrease in values in August, saw a significant reversal in that trend increasing 5% in September.

Dunedin values plateaued over the month (0.0% change) resulting in a 2.6% quarterly rate of growth which is the lowest of the main centres.

Meanwhile Tauranga is at the other end of the spectrum with values up 7% over the quarter and the annual growth rate hitting the highest level since March 2004 at 31.6%.

The Wellington area’s annual rate of growth continued to break records, now 35.9%.

Variable results from the HPI may be reflective of an uncertain market, where unaffordability has led to reduced demand and subsequently less competition, but quality stock is still fetching strong prices, says Goodall.

“Increasing interest rates will also play a part in reducing market activity.”

Looking ahead, Goodall says property values will continue to slow through 2021 and into 2022.

“A key reason for this is increasing interest rates, but local factors will play a part to different degrees across the country.

“These factors include investor appeal, affordability constraints, the health of the local economy and borrowers’ debt management behaviour.”