Staggering drop in housing market annual growth

From 30% annual growth at the turn of the year, the housing market has plummeted to just 4% growth and that is only half the story.

QV operations manager Paul McCorry says locations such as Wellington, Palmerston North and Dunedin, which had meteoric increases in mid to late last year, have had those capital gains wiped out and are now into negative growth – the first time in a decade this has happened in Dunedin.

Wellington city is leading the charge, where in real terms, the average home value has dropped by more than $130,000 in only a quarter. “It is not just confined to the city either – suburban areas such as the Hutt Valley and Porirua have also seen values drop between 7-9% over the last three months,” says McCorry. Across the city the average value is down almost 11% over the quarter.

While sale volumes undoubtedly remain low, local QV valuer Blake Ngarimu says deals are still continuing to be settled – albeit at a much slower rate than in recent years – with vendors having to be realistic in order to achieve a result. “We’re also seeing less interest now in off-plan purchases with the state of the property market still uncertain.”

The huge market correction is across most of the country and has been caused by rising interest rates, credit constraints and inflationary pressures.

Nationally, the average home dropped in value by 4.9% over three months to the end of July, or $74,000 since the beginning of the year, with all capital gains being wiped out. 

In the Auckland region, the average value now sits at $1,410,163, falling 5.5% over the three month period, or $131.005 since the beginning of the year.

There are now more properties on the market advertised with actual asking prices, which is a sign that vendors are recognising the fact that the market has turned in favour of buyers, says local QV valuer Hugh Robson.

“There are still a lot of new-build developments under construction right across the city. It will be interesting to see how they sell as they come onto the market over the next three to six months,” he says.

McCorry ways while the drop in values seem jaw dropping, it’s no surprise the areas that had the fastest gains towards the peak at the end of last year are now having the sharpest declines.

One of the few exceptions is Christchurch, which had had almost 40% annual growth by the later months of last year, but is now seeing only relatively moderate declines of 3.4% for the quarter.

A symptom of the last major market correction in 2008, was high volumes of mortgagee transactions, but McCorry says such a widespread trend was unlikely to occur in the existing market.

“Following the GFC, mortgagee sales were common as job security was weakened and serviceability became an issue. If there were a lot of mortgagee sales, this market correction could well tumble into a crash, but the most recent unemployment statistics, nudging up only marginally to 3.3%, demonstrates just how tight the labour market is, which is also supporting some wage growth.

“Unless there is a dramatic shift in unemployment, it seems improbable that this will happen in 2022, even with higher interest rates.”

In addition to a strong labour market, he said loan-to-value (LVR) ratios were now performing as they had been designed to. “Stringent LVR restrictions were much maligned by first-home buyers over the past few years but the insulation blanket of a 20% deposit required by the Reserve Bank is now serving its purpose.”

Meanwhile, Queenstown-Lakes District remains an outlier as the only one of the 16 major centres QV monitors that has had positive growth over the past three months, albeit only just at 0.2%.

McCorry says that the region should continue to buck the trend: “With the complete removal of all border restrictions at the end of last month, the obvious benefactor will be the tourist capital of the country.

“With increased tourism, the demand for accommodation for hospitality and tourism workers will return, which should be a boost for property investors in the region, as well as breathing some much needed air back into the local economy.”

He says there is little sign of an arrest in the rate of inflation despite the Reserve Bank lifting the OCR – any further OCR increases will only fan the flames of the correction further.