‘Buyers take the upper hand’: House prices fall as NZ passes ‘value peak’ of market cycle

House prices have fallen back to the same levels as November 2021, as rising interest rates and credit constraints continue to bite.

The latest QV House Price Index showed the average home decreased in value by 2.2 percent nationally over the past three-month period to the end of May. This is the same decrease in quarterly value change seen in April, with the national average value now sitting at $1,030,221.

This represents an average annual increase of 10.5 percent, down from 14 percent annual growth last month.

In the Auckland region, the average value now sits at $1,469,625, falling 3.3 percent over the last three-month period, with annual growth of 9.9 percent, down from the 14.2 percent QV reported in April.

“There’s no question that prices are falling, especially now as buyers take the upper hand in negotiations. It’s really just a matter of how much further values will fall before finding the new equilibrium,” said QV general manager David Nagel.

Wellington and Hamilton showed the largest three-month value reductions, with falls of 4.9 percent and 4.4 percent respectively. Napier and Rotorua, at 4.2 and 4.1 percent reduction in values, were also not very far behind.

Only two of the 16 major urban areas that QV monitors showed an increase in three-monthly house price value, with Queenstown Lakes (4.5 percent) and Marlborough (1.1 percent) defying the downward trend in quarterly growth. Queenstown is also the only major urban location to record an increase in the rate of value growth compared to last month.

“Almost all of the country has passed the value peak of the market cycle. This was originally driven by investors and first-home buyers competing for limited stock, especially with the availability of low-interest loans,” Nagel said.

“That led to massive value increases to the more affordable locations, so it’s no surprise these are the first values to get hit. But as the market downturn takes hold, even the higher valued properties have started being impacted now.”

Nagel said with interest rates likely to climb further to battle inflationary pressures, as well as economic uncertainty with the Ukraine conflict and continuing supply chain disruptions, there’s still a way to go before the market bottoms out.

“We’re unlikely to see any significant value growth until at least 2023 when fully open borders might allow for the return of tourists and immigrants to New Zealand at pre-COVID levels.”

Despite the latest quarterly value reductions, annual value growth continues to track upwards, with the average property in New Zealand increasing in value by 10.5 percent since May 2021.

The Canterbury region has recorded the highest annual growth at 24.9 percent, while the lowest growth has occurred in the Wellington region at just 3.1 percent growth over the past 12 months.

Auckland

Home values have dropped across Auckland for the third month in a row, QV said, with the region posting an average 3.1 percent loss for the three months ending April 2022.

Home values dipped across the Auckland region by an average of 3.3 percent this quarter, with just one district managing to buck that trend.

The biggest dips were in Auckland’s central suburbs (-4.5 percent), Papakura (-4.1 percent), and Manukau (-3.7 percent), with North Shore (-2.7 percent), Waitakere (-1.7 percent), and Franklin (-1 percent) also showing significant home value reductions as economic headwinds continue to intensify.

At 2.8 percent positive home value growth for the three months ending May 31, 2022, Rodney was the lone exception to an otherwise region-wide downward trend that local QV registered valuer Hugh Robson said was likely to escalate as we move into winter.

“The Auckland residential market continues to slow down, with sale prices falling moderately over the past four to six weeks,” he said.

“It appears vendors are now realising the market isn’t what it was from June to November last year, and so they are now adjusting their price expectations in order to secure a sale agreement. Many auctions are ending without a result, with negotiations taking place later, behind closed doors.”

The average home value across the wider Auckland region is now $1,469,625, 9.9 percent higher than it was 12 months ago.

Wellington

The Wellington region has continued to see a drop in home value levels over May.

The average home value dropped by 3.1 percent last month in Porirua ($961,996), 2.1 percent in Upper Hutt ($881,499), 2.7 percent in Hutt City ($938,235), and 2.7 percent in Wellington city ($1,194,787). The neighbouring Kāpiti Coast District ($976,071) also recorded a decline of 0.6 percent.

In the last six months, Hutt City (-9.9 percent) recorded the largest drop in average home value, followed by Upper Hutt (-7.4 percent) and Porirua (-6 percent). Only Wellington city’s central suburbs (2.8 percent) posted a net gain over this period. Everywhere else saw a decline in average home value since the market peaked late last year.

“Due to the recent hike in the Official Cash Rate to what is now 2.00 percent, it is anticipated that interest rates will continue to climb, making servicing a mortgage, coupled with the current high cost of living, that much more difficult. As a result, agents have reported a number of deals falling through and a surplus of listings struggling to sell,” said local QV senior consultant Blake Ngarimu.

“The fear of missing out has definitely gone and the fear of overpaying has well and truly set in.”

Canterbury

Home value growth also slowed across much of Canterbury, with values climbing just 0.3 percent this quarter, down from the 1.6 percent QV reported last month and 2.4 percent the month before.

Christchurch experienced some negative growth last month – the last of New Zealand’s major cities to do so since the residential property market peaked nationwide at the end of last year – with values dropping by an average of 0.6 percent in May. The average indexed value now sits at $797,005, which represents a 12-month growth rate of 24.6 percent.

“Anecdotally we are still seeing an active property market – especially for good residential homes, yet more buyers are placing more conditions on sales and negotiating sale prices,” said local QV property consultant Olivia Brownie.

“We are starting to see some more realistic asking prices from developers for house-and-land packages on the outskirts of Christchurch and expect more of the same over the coming winter months throughout the region.”

Queenstown

On average, home values increased more in Queenstown this quarter than in any other main centre.

The average home value increased 4.5 percent to $1,666,755 over the three months ending May 31, 2022 – well above Marlborough (1.1 percent), which was the only other New Zealand main centre to post positive home value growth over this period.

Despite this recent spike in home value growth, QV property consultant Greg Simpson expected to see rising interest rates and tightening credit conditions continue to apply downward pressure on the local residential property market as a whole.

“We expect to see activity in the residential property market slow and prices ease,” he said.

“Most economists expect that the OCR, which determines mortgage interest rates, will be further raised and are predicting a series of hikes to mortgage interest rates. This hiking in interest rates will have a cooling effect on the housing market.”