188 suburbs out of the house price doldrums

1. Early stages of upturn are spreading across more suburbs

Our latest look at suburb-level median property values – Mapping the Market – was released last week, and it showed that 188 areas recorded a gain of at least 0.5% in the three months to September. In the three months to June, that figure was only 71. In other words, the emerging signs of growth are broadening out across more suburbs, and the "early risers" have included parts of Auckland and Wellington – e.g. Howick, Otara, Stonefields, Newlands, Southgate. I still believe that the upturn will prove weak by past standards (e.g. due to "higher for longer" mortgage rates), but the evidence that it has at least begun is becoming clearer.

2. First home buyers still a key force

Meanwhile, the latest CoreLogic Buyer Classification data showed that first home buyers (FHBs) took about 27% of property purchases in August, a new record high. Clearly, FHBs are enjoying a bit less competition from other buyer groups at present (such as mortgaged investors) and significantly lower house prices than in 2021. They’re also benefitting from various supports, such as a KiwiSaver withdrawal for the deposit (or at least part of it), First Home Grants & Loans, and also the ability to access low-deposit finance via the LVR speed limits at the banks.

By contrast, relocating owner-occupiers (movers) and mortgaged multiple property owners remain pretty quiet by their standards. To be fair, they’re still buying – just not as frequently as in the past. And in the case of mortgaged MPOs in particular, it’s not hard to see the reasons why, which include low rental yields, high mortgage rates, significant deposit requirements, and the phased/removal of mortgage interest deductibility for tax purposes.

3. Rents are accelerating

Part of the motivation (a push factor) for people to become first-time homeowners is also likely to be the re-emerging growth in rents. On the Stats NZ flow measure (relating to new tenancies), rents rose by 6.2% in the year to August, the fastest pace for 16 months, and a fairly sharp acceleration from figures of less than 1% in late 2022. Given that they’re already high in relation to incomes, this phase of growing rents will have its limits, but with supply and demand looking relatively tight (rental vacancy rates are low), there are probably still further increases ahead.

CoreLogic chief economist Kelvin Davidson: "I still believe that the upturn will prove weak by past standards, but the evidence that it has at least begun is becoming clearer." Photo / Peter Meecham

4. Net inwards migration remains high

In turn, underpinning the faster growth in rents is likely to be the surge in migration. In net terms, we gained about 5,800 people in July – reflecting big inflows of new residents minus historically high outflows of Kiwi citizens – taking the annual total up to around 96,200. That’s the highest level for at least 20 years. Now, these figures can be prone to revisions. But it’s still pretty clear that we’ve had substantial population growth recently, and a fair bit of this is likely to have moved into the rental sector, at least for a start. That will tend to underpin house prices too.

5. A brief emergence from recession?

There’s only really one key data release coming up this week, but it’s a cracker – Q2 GDP from Stats NZ on Thursday morning. Remember that GDP dropped in both Q4 2022 and Q1 2023, meaning a ‘technical’ recession. Expectations are that Q2’s number could be around +0.5%, meaning that the recession then ended. But of course, we’re now nearly at the end of Q3, and the consensus view is that we might have already slipped back into the start of another (mini) recession for the second half of 2023. Long story short, there are still economic challenges, and strong growth isn’t likely soon.

- Kelvin Davidson is chief economist at property insights firm CoreLogic