But the annual rate of change has eased
Property values across New Zealand continued to decline in May, down 0.7%, but the annual rate of change has eased, signalling that the current downturn may be winding up, CoreLogic has reported.
Average values across New Zealand were down 10.2% from the same month last year and were $121,000 below their peak, but still up $194,000 compared to the March 2020 level, with the annual rate of change easing slightly from -10.3% in April.
Nick Goodall, CoreLogic NZ head of research, said indicators such as moderating house price falls and the latest cash rate forecasts from the Reserve suggesting the OCR has peaked were positive signs for homeowners.
“While the OCR is at a relatively high level of 5.5% following a total increase of 525 basis points over the last 20 months, this expected ceiling for interest rates reinforces our view that a possible floor in prices is approaching,” Goodall said.
“This has been an exceptionally fast and impactful monetary policy tightening cycle and the RBNZ has effectively said now is the time to pause, and wait and see how this plays out, as mortgage holders continue to adjust to increased mortgage payments, reducing spending elsewhere in the economy.”
A peak in the cash rate, at least in the short term, will provide borrowers of nearly 50% of existing loans by value with a bit more comfort and certainty, by enabling them “to quantify the worst-case scenario for their mortgage repayments,” Goodall said.
And while Centrix has reported an increase in mortgage arrears to 1.31% in March, up from the recent low of 0.94% at the end of 2021, the NZ Bankers Association said that nearly 45% of mortgage holders were ahead on their repayments at the end of last year.
This is in line with estimates from mortgage advisors that through the period of falling interest rates, approximately half of all borrowers opted to keep their repayments at the same level as their old schedule when refixing at lower rates.
“It seems the majority of borrowers are well-placed to adjust to the higher repayments likely due to growth in wages and reduced spending elsewhere,” Goodall said.
“More vulnerable sectors are likely to include first-home buyers who purchased around the peak of the cycle who haven’t had the benefit of time to accrue equity in their home or a savings buffer, along with lower income households where balance sheets are likely to be more thinly stretched.”
In Tauranga, value falls accelerated over the month (-2.3%), while there was very little to no change in Dunedin for the second month in a row (0% in May and -0.1% in April).
Despite signs of easing across parts of the country, all main centres still experienced declines of at least 1.9% over the past three months, including Christchurch, which has generally been more insulated from significant falls in value in this cycle, CoreLogic reported.
Over the past year, the rate of decline in most main centres eased, excluding Christchurch (-4.3%, from -3.6% in April) and Tauranga (-13.2%, from -11.4% in April). In Tauranga, the average property value fell to $1.02 million.
In the wider Wellington area, the average value tumbled below $1m in September and has now dropped to under $900,000 – the lowest level since January 2021, wiping out potential gains for those who purchased in the past 27 months.
The Wellington area continued to hold the dubious honour as the worst-performing market when compared to the recent peak (down 21.3%). The signs of stabilisation are now at risk, however, as the rate of decline speeds up again.
“Perhaps the inconsistencies of the Upper Hutt market perfectly encapsulate a market trying to find its feet, with a quarter of peak value now wiped out,” Goodall said. “The encouraging sign in April of a 0.1% increase has now been superseded by a 2.5% fall in May, quashing suggestions that market has bottomed.”
“Similarly, Wellington City values fell back into the negatives (-0.7%) after a minor lift in April. Like Tauranga, the average value has fallen closer to $1m, sitting at $1.02m at the end of May.”
However, over three months, both Lower Hutt and Wellington City have seen a genuine moderation in falls, with declines of -1% and -1.6%, respectively, compared to the -5.3% in Upper Hutt and -4.9% in Kāpiti Coast.
Franklin, in Auckland, has performed very differently to the rest of the super city, which according to Goodall could be due to the relative affordability of the area, along with lifestyle preference of many homeowners opting to pick up a property there, CoreLogic reported.
“Values in Franklin are 4.5% higher over the last three months and ‘only’ -8.2% down over the last year,” Goodall said. “Similarly, Auckland City has seen values fall -8.0% over the last year and are essentially flat (-0.1%) over the last three months.”
“Meanwhile, the rest of Auckland generally saw values fall by around -1% over the month, with the exception of Rodney, where average values dipped -1.9%. Interestingly, Papakura, the most affordable part of Auckland, has fallen the furthest over the past three months (-5.8%) and -17.5% over 12 months. It’s possible an over investment in new developments could be driving the larger falls.”
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