House Prices

Falling house prices slowly entrenching

In line with Barfoot & Thompson’s data showing Auckland’s steep decline in house sales and prices, CoreLogic’s House Price Index shows a 1.6% drop in Auckland’s house prices.

Thursday, May 05th 2022

This drop reverses the 1.4% growth in March.

At a more granular level, the old Auckland City Council area, which has the highest average value of the super city at $1.72 million, had the largest fall in values, of 2.5% over April. Both Waitakere (1.9%) and Manukau (1.5%) also experienced noticeable drops. Meanwhile some growth persisted in Franklin (0.6%) and values in Rodney fell by a very minor 0.1%.

Christchurch is the only main centre to show any real resistance from the weakening market, with values appearing to plateau rather than fall recently.

However, the average values of Christchurch and Dunedin properties have meant the two cities drifting further apart. This is a revealing change given Dunedin’s average value was greater than Christchurch as recently as September last year, says Nick Goodall, CoreLogic’s research head.

The 2.9% fall in Dunedin values over the past three months is the greatest quarterly drop in more than 13 years – when the market was still in retreat from the Global Financial Crisis (GFC).

Goodall says house price affordability has become particularly stretched in the “Edinburgh of the South” with it being the third most unaffordable main centre, according to the value-to-income ratio, years to save a deposit and proportion of income required to service a mortgage measures.

Similarly, the 2% fall across the Wellington region in the past three months is also a record since the GFC. Both Lower and Upper Hutt are key contributors to the regional deterioration, with 3% and 2.6% drops over the month respectively.

However, all five of the main Wellington localities had declines in their average values over April and the last quarter. “The slowdown has clearly hit hard across the capital – perhaps reflecting the impact of tightening credit on first home buyers who typically account for a relatively high share of sales compared to other main centres,” says Goodall.

Outside the main cities there appears to be particular weakness across the Manawatu/Wanganui and Hawke’s Bay regions with the Hastings market falling 2.4%, Wanganui down 2.3% and Palmerston North dropping by 1.5% in April.

Growing inequality

Goodall says affordability remains a key constraint on the market as increasing interest rates impact the number of eligible borrowers and the amount they can borrow.

Recent reporting of the importance and increased prevalence of the bank of mum and dad illustrates the growing inequality of society split by those who own property and those who don’t. Doing it on your own, says Goodall, is becoming more and more difficult in this environment and this will ensure the housing market remains a hot topic for both the Government and parties in opposition.

He says the trajectory of the OCR forecast is what is of most interest however and the forecast peak of more than 3% is no doubt tempering some would-be-buyers to hold off in the environment of a falling market alongside rising interest rates.

“Outside of interest rates there appears to be a feeling that credit availability could be lifting out of the worst of times. High LVR lending has dropped well below the allowed speed limits and with pre-approvals back on the table and anecdotes of banks more comfortable to open up again, we may see a little lift of ‘otherwise locked out buyers’, though this pool of buyers is likely to be relatively small.

“The slowdown/downturn appears to be entrenched, but will likely play out in a gradual manner, as long as the labour market remains tight. It should be noted that mortgage serviceability test rates have also increased with actual interest rates. While this likely contributed to the reduction in lending and transactions, it should serve to stress test that borrowers can withstand interest rate increases.

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