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Housing market shows possible first shoots of downward slide

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.

« Housing crisis needs building surgeHouse prices and numbers sold soar »

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Comments from our readers

On 3 March 2021 at 11:39 pm Michael Donovan said:
Well....I'm not prone to saying "I told you so..!"

What goes up must come down (not my personal quote)

What goes up for too long must really clearly come down
In relation to the hot topic, housing (or lack of it) I put my prediction in writing a few short months ago....
I predicted July 2021

So, I have been caught out by being a few months late....but no-one I know can get the day right every time

So what has been a large bunch of contributions to the "over the top" house price are a few to ponder..

> Herd-hype
> Low interest rates (they never stay low forever and there are huge "DEBTS" to be repaid now
> A big culprit has been the introduction of virtually ALL house sales being conducted by "auctions" .
The vendors pay for the auction costs amounting to thousands of dollars
The relevant land agents are unique in this point because virtually ALL other businesses pay themselves for any advertising..!?
> The buyers sit in a room of over 37 people on average, and bid "against" each other (including several claimed phone bidders?)and push the sale prices up higher than they would be normally!?

That is just a 'short list' for now.

July 2021 was initially claimed as the fall date due to there being an inevitable flow-on effect from the re-scheduled "big-wigs" annual meeting overseas being re-scheduled from the original January date to become July.

That meeting will cause utility prices to rise (eg electricity & water & so on) along with land taxes (rates) as the crumbling local governments (councils) endeavour to 'remove' much of the huge DEBTS of recent years.

Household DEBT has become a sinister near future problem....all creating the catalyst for the 'herd' to suffer from falling house prices.
Remember, dear old Blue Chip used to base their seminars on the point that houses rise in value (so called inflation) by "dounling" in value on average every 10 years.
This simply means that you expect the equivalent of 10% pa value rises.
So what sort of calculator do you use to create the 10%pa average when you have had years of 17% up to even 27% rises each year.

What part of that (above short list) English explanation may you not understand???

Watch this space......if you are interested, especially if you belong to the 'herd.'
Michael (Tauranga)
On 4 March 2021 at 2:53 am Barry Nesdale said:
Don't be so quick to jump to conclusions. The lower February median house price in Tauranga was skewed by a larger number of lower priced houses being sold by investors ahead of rising LVRs. There will be a rebound in the next month or two.
On 7 March 2021 at 10:08 pm Michael Donovan said:
You could be correct Barry, about jumping to conclusions
However, you possibly have not been privvy to my previous comments/opinions during the last year or so.
And yes, it is a logical response to comment about the reasoning for the 'master' article.
You used the word "will" when stating your opinion regarding a 'rebound.'

I rarely use the word "will" because death is the only event that 'will' happen (tax is now debate able).
We have 4 to 8 weeks to see if your prediction 'will' eventuate (seeing you put it into print.

I shall apply that word to state that there will be an intended meeting (between the 'big wigs') around the middle of this year, which I elaborated on in my letter above.
The resulting effects of that meeting "will" not leave NZ immune.

So, the debate between you and I at least "will" be surely settled this year?
Meantime, our gut should be noticed, meaning that when there are 'signs' of something, we should at least take notice, and maybe there are people who 'will' forfeit say 7 to 10% gains over the next few months rather than a 30%+ capital loss.
Depends whether one has a 'barrow to push', and more specifically which barrow?

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CFML Loans 7.25 - - -
China Construction Bank - 5.35 5.80 5.99
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Credit Union Auckland 5.95 - - -
First Credit Union Special 5.85 5.35 5.85 -
Heartland Bank - Online 4.60 ▼4.79 5.29 5.39
Lender Flt 1yr 2yr 3yr
Heretaunga Building Society 6.50 5.60 6.00 -
HSBC Premier 6.34 5.09 5.34 5.59
HSBC Premier LVR > 80% - - - -
HSBC Special - - - -
ICBC 6.00 ▼4.79 5.15 ▼5.69
Kainga Ora 5.85 5.31 5.58 5.97
Kainga Ora - First Home Buyer Special - - - -
Kiwibank 6.00 5.95 6.45 6.79
Kiwibank - Offset 6.00 - - -
Kiwibank Special - 4.95 5.45 5.89
Liberty 4.84 - - -
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Nelson Building Society ▲6.95 5.55 6.15 -
Pepper Money 5.29 - - -
Resimac 5.59 6.54 6.44 6.98
SBS Bank 6.29 ▼5.39 ▼5.79 5.99
SBS Bank Special - ▼4.89 ▼5.29 5.49
Select Home Loans 6.89 - - -
TSB Bank 7.05 ▼5.65 6.09 6.39
TSB Special 6.25 ▼4.85 5.29 5.59
Unity 5.65 4.95 5.55 -
Wairarapa Building Society 6.49 5.55 6.15 -
Westforce credit union - Special - 5.35 5.85 -
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Westforce credit union - Standard 5.85 6.05 6.55 -
Westpac 6.39 ▼5.55 6.05 ▼6.29
Westpac - Offset 6.39 - - -
Westpac Special - ▼4.95 5.45 ▼5.69
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