Housing market shows possible first shoots of downward slide

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Sally Lindsay reviews the latest CoreLogic HPI data – could the property market may be heading for a slowdown?

Wednesday, March 3rd 2021, 11:07AM 3 Comments

The booming housing market could be about to take a tumble. 

The CoreLogic House Price Index (HPI) for February shows a housing slowdown could be on its way with Tauranga the first of the main centres to see a month-on-month drop in house prices.

While values in other centres continue to rise, the Tauranga decline could be a signal of things to come with loan-to-value ratio (LVR) restrictions officially back in place this week and further tightening for investors from May 1.

“A drop in house prices is even more likely following the Finance Minister Grant Robertson’s direction to the Reserve Bank to ‘have regard to the impact of its actions on the Government’s policy of supporting more sustainable house prices’,” says Nick Goodall, CoreLogic’s head of research.

When reintroducing LVRs, the Reserve Bank said it expected them to shave 1-2% off house prices.

CoreLogic figures show there was a dip in Tauranga’s house values of 1.5% over February. But in the broader context of 6.7% growth over the past three months it’s too soon to call this a trend, says Goodall.

“Tauranga does stick out when it comes to unaffordability, with 43% of the average income required to service a mortgage – the worst of the main centres. So there are factors in play here which could lead to a prolonged slowdown in property value growth.”

For the rest of the country the HPI for February shows property values continued to grow, increasing by 2.6%. This takes growth in the past 12 months to 14.5% – a rate not bettered since the 12 months to October 2016, when it was 14.8%.

The main centres

Each of the six main centres have experienced annual growth of more than 10% to the end of February, with Wellington having the greatest rate of growth at 16.6%.

This takes the average property value for the wider Wellington area (including Porirua City, Hutt City and Upper Hutt City) to more than $900,000 for the first time.

“The average property value in Wellington City now exceeds $1 million after 7.2% growth since November,” says Goodall. 

“As is the case in most other parts of the country, limited stock of listings, a lack of land for development and restrictive infrastructure spend by councils is prohibiting supply, at a time
when demand is strong.”

The outer areas of the Wellington region saw the greatest growth. This reflects a mix of better affordability, improved commute times and remote and flexible working arrangements becoming more common.

Carterton property values increased by 13.7% over the summer period. The average value in the Kāpiti Coast District now exceeds $800,000 for the first time, after growing by 12.4% over the same period. The annual growth rate of 23.0% in Kāpiti is now the equal highest for the district, matching December 2016.

Up north, Auckland’s booming house prices continued to build in February. Average values in the city were up by 2.9% – exceeding the national figure of 2.6%, and second only to Dunedin in terms of monthly change amongst the main centres.

The country’s biggest city’s average value is now within a whisker of the $1.2 million mark, for the
first time, and 13.3% above a year ago. The growth in values is coming on the back of low listings –   the new weekly flow running a bit below last year’s – and a sustained presence of investors. Their
share of purchases hit 32% in January.

The average property value in Hamilton went above $700,000 for the first time in February, hitting $712,717 – up by 2.7% from January’s mark and also 14.5% higher than a year earlier.

Growth is reasonably broad-based across the city, although the south west (and generally cheaper) parts of Hamilton are slightly ahead of the rest, with an annual rise of 16.3% in February.

South Island values

Further south in Christchurch, average values rose by another 1.5% in February, pushing them up to almost $565,000, 10.2% higher than a year ago.

The annual growth rate in Christchurch hasn’t been in double digits since February 2014. At that time the market had just passed its peak growth rate in the aftermath of the post-earthquake upswing – due not least to a reduction in the city’s housing stock.

However, even despite the recent growth in property values, Christchurch’s housing affordability is
still much more favourable than the other main centres.

After a sluggish period through the middle of last year, Dunedin has started to surge again lately. Average values were up by 3.2% in February alone, and by 15.3% over the past year (which equates to more than $81,000).

Of course, the flipside is reduced affordability; it now takes about nine years to save the average deposit in Dunedin, worse than in Christchurch, Hamilton and Wellington. By contrast, from 2014 to 2016, Dunedin required the fewest years to save of each of these cities.

Around the provinces

Recent momentum rolled on in February. Four out of 12 of the provinces have seen double-digit growth in average property values in the past three months alone.

Whanganui is leading the field at 15.0%. Gisborne at 9.5% and Palmerston North at 9.2% are not far
off the 10% mark for quarterly growth either.

The area that stands out over a longer, 12-month horizon is Gisborne, with an increase of 30.6% since February last year – or more than $127,000.

Based on a 20% deposit, this means buyers have had to raise at least an extra $25,400 in the past year alone. In other words, the flipside of rapidly rising house prices is a sharp decline in affordability, which is likely to progressively weigh on property growth rates.

Gisborne’s house price to income ratio of 4.8 and the number of years to save a deposit at 6.4 are at their highest levels since at least 2004. And despite low interest rates, the share of income required to service a typical mortgage is currently 23.0%, the highest for more than a decade.

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