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13 Nov 2017

State of the Market

The New Zealand housing market has cooled considerably over the past year, with short-term price gains likely to remain subdued due to a confluence of political uncertainty, tighter lending restrictions, and unsustainable price levels. According to most experts, however, the current slowdown is more likely to be a temporary bump in the road than the start of a market crash. While the long-term outlook for the housing market remains uncertain, population growth and supply problems are likely to put ongoing pressure on property values for some time to come.

According to the latest QV House Price Index, house prices across New Zealand rose by 3.9 percent over the past year, with values in Auckland slipping by 0.6 percent. This is the first time that Auckland prices have fallen on an annual basis for six years, and the first time that national values were less than they were the month before. While the rate of value growth has been slowing throughout 2017, a drop in Auckland prices may point towards a larger and more protracted market correction. There are many reasons for this decline in prices, including LVR restrictions, an uncertain political situation, affordability constraints, and tighter lending conditions. The new government's ban on foreign ownership could also have a negative effect on prices, although population growth and ongoing supply problems are likely to keep demand high.   

According to QV spokeswoman Andrea Rush: "We're starting to see new government policies coming on stream. What we are noting is that listing numbers are very low and sales volume is well down on this time last year and even lower than during October 2015... You've had for the first time since April 2011 that annual rate of growth in the negatives... If you look since October last year, things are pretty stable, pretty flat. Prices are holding though - still over a million dollars, still really expensive, still getting record prices in those well-presented homes, well-located homes... Those sort of levels of growth year-on-year were not sustainable... We're coming out of that sustained period of strong growth, and now things are stabilising, prices are holding and in some areas dropping back a little."

Even with Auckland struggling to gain new ground, double-digit growth was still recorded in Hastings, south Waikato, Masterton, Kawerau, Otorohanga, the Mackenzie district, and south Wairarapa. Some of New Zealand's other cities are also ticking along nicely on an annual basis, with 12 percent house price growth recorded in Dunedin, 10 percent in Wellington, 13.9 percent in Nelson, 18 percent in Napier, and 19.2 percent growth recorded in Hastings. Property listings and sales volumes are both well down on this time last year, however, leading many experts to expect cooler conditions across the country over the next few months. This is good news for first-home buyers, who have fewer investors to compete with despite having less stock to choose from.

The long-term position for house price growth in New Zealand is likely to be supported by population growth and lack of supply in Auckland and other key markets. While net migration is likely to be limited to 20,000-30,000 per year under the new government (from the current annual rate of 71,000), this reduction will mostly affect unskilled workers and people on student visas. In terms of housing supply, we are unlikely to see a quick resolution to the supply problems faced by Auckland and other cities in recent years, meaning any significant short-term correction to house prices is likely to be self-limiting.

Image source: One02/Shutterstock