House Prices

Worst of house price drops could be at an end

The drop in average house values has surpassed the worst point of the Global Financial Crisis.

Thursday, April 20th 2023

Although property prices have fallen 10.5% in the past year, the end of the downturn could be in sight.

The stabilisation of mortgage rates is one of several market indicators signalling a possible end to the country’s extended property dip, despite the 50 basis point cash rate hike earlier this month.

CoreLogic Housing Chart Pack shows there are green shoots beginning to emerge among metrics such as listing numbers, sales volumes and an easing in price falls.

Chief property economist Kelvin Davidson says despite further house price falls last month and subdued property activity levels, the market fundamentals are not as weak as they have been.

“Value trends remain weakest in the North Island, with parts of Canterbury and the West Coast still recording some modest increases,” he says.

“Yet there are also hints in last month’s sales data that the worst may now have passed for activity, and with new listings flows each week still low, the total stock of property available for sale on the market is now just showing the first signs of tightening a little.”

Average property values fell 2.4% in the March quarter, and Davidson does not rule out further price falls in the short-term, but says there is little movement among banks and lenders to pass on the most recent OCR increase.

This decision suggests mortgage rates may have reached their peak, allowing borrowers to quantify their ‘worst case’.

“Any suggestion interest rates have topped out will provide buyers and sellers with more confidence and is eventually likely to result in a turnaround in housing sentiment,” he says.

“When you also consider continued high employment levels – and employers wanting to retain staff at all costs – rising net migration, and the possibility that some investors could start to return to the market as they try to pre-empt debt to income ratio caps next year, there’s a growing sense the market’s downturn could end in the second half of 2023. Of course, uncertainty remains high, but there does now seem to be light at the end of the tunnel.”

Key Housing Chart Pack highlights:

New Zealand’s residential real estate is worth a combined $1.57 trillion.

With the Auckland region, Auckland City has recorded the smallest fall in Q1 values, down 0.8% in the three months to March. Papakura has recorded the largest fall, down 6.1% over the period.

Wellington has recorded a -20.0% drop in average property values in the 12 months to March, the largest of the main centres. Christchurch has experienced the most marginal falls, declining -2.9% for the same period .

Sales volumes in the 12 months to March were 30.9% lower than a year ago.

There were 7,680 new listings over the four weeks ending 9 April compared to 10,907 for the same period in 2022.

Total stock on market is 36,172, well above the five-year average of 30,803.

First home buyers remain a solid presence in the property market, with a 25% share of purchases over Q1 2023.

Annual rental growth is around 3% in the 12 months to March, more subdued compared to 2022 levels, at least partly due to tenants’ affordability constraints.

Around 50% of NZ’s existing mortgages by value are currently fixed but due to reprice onto a new (generally higher) mortgage rate over the next 12 months.


On Thursday, April 20th 2023 12:44 pm Amused said:

CoreLogic’s chief property economist has been writing and talking about "light at the end of the tunnel", "green shoots" and a "peak in mortgage rates" now for 12 months. Has he been proven correct in the past? No. Will he be proven correct this time? Probably not. House prices still haven't returned to their pre-covid levels. They rose by a massive 40% during the pandemic driven by interest rates that the RBNZ set too low for too long. Price falls may have slowed but this because many vendors have now taken their homes off the market because they can’t find a buyer who will pay them what their house was worth in late 2021 back when you could still borrow a home loan as cheap as 2.19% p.a. Many of these vendors are clinging to the mistaken belief that they'll find a buyer in the near future (6-12 months’ time) who will pay them these prices again even though mortgage rates will not be anywhere near these low levels. It doesn't matter if interest rates have potentially peaked now. The house prices we have currently no longer work with advertised interest rates for the majority of borrowers.

On Saturday, April 22nd 2023 7:23 pm W k said:

the "light at the end of the tunnel" could be the train coming. just saying.

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