‘Drifting closer to the depths of the GFC’: House prices fall at double rate

House prices fell at double the rate of July last month as the market’s downturn speeds up, the latest data shows.

Core-Logic’s latest House Price Index (HPI) data, which is the most robust measure of property value change, showed national property values fell a further 1.8 percent in August, twice the rate of July (-0.9 percent).

CoreLogic NZ head of research Nick Goodall said restricted and more expensive credit is making potential buyers increasingly weary. Goodall said the downturn is now firmly entrenched and evident across the entire country.

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The three-month fall in values of -3.5 percent is drifting closer to the depths of the Global Financial Crisis (GFC) when the rate of change bottomed out at -4.4 percent at the end of August 2008, he said.

“Consumer sentiment can be a key influence on the market and with the evidence of market downturn clear in every corner of the country, the already-smaller pool of would-be buyers, due to tighter, more expensive credit are happy to bide their time in the falling market,” Goodall said.

National and Main Centres

Property prices continued to fall across the six main centres in August with Dunedin dropping by 2.5 and Auckland down 2 percent. They joined Wellington, down 2.6 percent, as areas where the monthly rate of change has fallen below -2 percent.

The monthly rate of decline in the other three main centres was also below -1 percent.

The three-month percentage fall in Christchurch was very minor with values remaining 16.4 percent above the same time last year, illustrating the greater resilience of the Garden City, which remains the most affordable of the large cities. The property value to income ratio in Christchurch is 7.1 – a lot more favourable than Auckland, at 9.7, or Dunedin at 8.2.

Lower Hutt was one of the weakest areas in Wellington with house values falling by 3.2 percent along with Wellington City which fell by 2.7 percent. The downward momentum in the market has been persistent, with Wellington City values now -8.2 percent lower than they were at the beginning of winter.

Of the five areas included in Core Logic’s data, the Kāpiti Coast District was the only area where values increased, up 1.2 percent at the end of August than the same time last year. Meanwhile, Lower Hutt property values are now -6.4 percent below then.

Goodall said increasing interest rates and stricter lending rules alongside waning confidence are impacting the market.

“The restrictive lending environment, where loan-to-value ratio limits remain tight and increasing interest rates affect borrowing power alongside waning market confidence, all appear to be consistently impacting this typically high first home buyer market the most,” he said.

“The downward momentum shift has been relatively consistent across the Auckland Super City in August, with values falling between -1.7 percent in the city’s outer areas, to -2.2 percent in Auckland City.

“Longer term change is more varied however, with values only slightly above (2.3 percent) where they were at the same time last year in the more expensive Auckland City area, when compared to the more affordable locations further south, in Papakura (12.9 percent) and Franklin (13.4 percent).”

Meanwhile, house values in Queenstown showed some resilience, up 0.4 percent in August. But the three-month change of -1.1 percent since the end of May is probably more indicative of recent market movement, Goodall said.

Meanwhile, values in Palmerston North have fallen to below the same time last year, down 2.3 percent while Napier values are back to parity with that time. Whangārei is also down 2.6 percent along with Gisborne down 2.3 percent.

Outlook for NZ housing values

Goodall said while it’s likely prices will continue to drop, there is some cause for optimism in the data.

“Consumer sentiment has shown signs of bottoming out, probably helped by recent falls in short-term interest rates and whispers of a market trough approaching for some markets,” he said.

“The borrowing environment remains tough though, and along with stretched affordability off the back of increasing interest rates, a firm bounce back in values is not expected. Further increases to the official cash rate are anticipated, but the shifts aren’t having the same impact on mortgage rates as previously, due to the changes already being ‘priced in’, and the banks competing hard for the reduced pool of lending.

“As expectations of mortgage rates nearing their expected peak become more common, housing affordability is likely to improve, which could add to an increase in property demand.”

Goodall said this will probably see buyers jump into the market to try to buy before the turning point and in turn cause the turning point.

He said property value growth may not immediately bounce back to any great degree but it would still spell the end of a unique downturn.

Core Logic’s data also showed mortgagee sales are remaining low, likely in part because of a strong labour market and low unemployment.