In a nutshell:
▶ Best performing major city: Dunedin
▶ Weakest major city: Tauranga
Property markets in New Zealand's main cities continue to be subdued, according to the latest CoreLogic latest House Price Index - but Wellington has bounced back from the drop it suffered earlier this year.
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The CoreLogic July QV House Price Index show property values in Wellington City grew by 2.3 percent, reversing the losses recorded since March 2018.
While this level of growth over one month is exceptional, it is perhaps not unexpected given that the previous drop was a surprise.
This bounce back is likely reflective of a volatile upper tier of the market which has a limited amount of potential buyers, especially given recent credit tightening.
Low listings in the capital mean some price pressure remains, especially in the price bracket below $675,000 where annual growth hovers just under 10 percent.
Looking at the wider Wellington region, Porirua values have grown strongly since April’s index (+3.0 percent) but did in fact plateau in the month since June’s results. Meanwhile value growth in both Hutt City and Upper Hutt has been more modest but consistent.
Values in Dunedin continue to grow, with 0.4 percent growth since the June index keeping the quarterly growth figure at 1.7 percent - the best of our six main centres.
According to the July results, Auckland was the only main city to see some value depreciation – by 0.3 percent, however values are marginally up over the three month measure. This is unlike Tauranga, where values remain 0.2 percent below April, despite a 0.4 percent lift in July’s figures.
In Christchurch, values remain slightly below those of a year ago, averaging $495,692 as at the end of July 2018.
Meanwhile in the regions, the recently witnessed, and expected, slowdown continues. Ten of the twelve regions detailed saw a decrease in the annual growth rate, since last month. The easing of net migration will be impacting these markets, on top of tightening credit and recent value increases affecting affordability.
Invercargill and Palmerston North were the only two centres to buck the trend of a slowdown in annual growth, with very minor (0.1 percent point) increases.
Elsewhere, Napier retains top spot, with the strongest annual growth of the main urban areas – however the continued reduction in annual growth rate, now 14.3 percent - down from 17.6 percent at the end of April – epitomises the expected slowdown outside the main centres. Nearby Hastings has seen a similar slowdown (from 12.5 percent at the end of April to 8.4 percent at the end of July).
The lower value centres of Whanganui and Invercargill continue to experience growth of roughly 10 percent or more, as does the slightly higher value Palmerston North.
Meanwhile values in Gisborne, which has a similarly lower value profile, continued to slow, with the annual growth rate down to 7.3 percent (from 10.1 percent at the end of May 2018).
Despite the slowdown in values, however, Gisborne’s property market looks likely to stay supported by the underlying economy. Indeed, ASB’s Regional Economic Scoreboard for the March quarter ranked Gisborne a respectable 6th out of 16 regions for recent economic performance. Key industries in Gisborne include agriculture, forestry, and viticulture, which are all pretty strong at present. Tourism in the area is also doing well, with guest nights hovering at around record highs.
As flagged last month, New Plymouth is an area of interest as anecdotal reports of local discontent increase in response to the Government announcement of no new oil and gas exploration permits being granted. Values in New Plymouth decreased between the June and July indices and the annual rate of change dropped further to 5.3 percent.
Nelson is the only main urban area to have experienced annual growth lower than this, as the higher average value ($559,023) impacts affordability, especially as credit from banks remains tight.
With such a sustained period of caution from the banks, the New Zealand property market continues to slow down across the board. People’s inability to secure funding, especially at the higher end of the market is seeing less price pressure translate to minimal value growth.
As we move through the winter months and begin to approach spring, the question is going to be whether or not the market responds in terms of listings on the market.
In most regions outside Auckland, listings are still near all-time lows which is contributing to the controlled slowdown in values as active buyers still face competition for the few properties that are on the market.
Typically new listings start to pick up in August after bottoming out in July each year so we will pay close attention to that data this month.
While we aren't expecting a change to the OCR rate (currently 1.75 percent) this month, the RBNZ's monetary policy statement will be keenly awaited.
Economic growth has weakened, as has net migration. This, on top of the flagging property market, starts to bring in the question of whether the Bank may consider loosening the LVR restrictions. However, given these are designed to protect the country’s financial stability, and global risks remain, I think it’s unlikely just yet.
Currently, one of the most talked about market factors is the supply side of the equation, with KiwiBuild front and centre. Building consent statistics remain very strong, which is important to make up for the lack of building earlier in the decade.
Crucially, this is especially the case in Auckland, and intensification via more townhouse type consents is also encouraging. We still have a long way to go however, and longer term this intensification will need to increase further, with a response in apartment building, especially along common public transport routes.
KiwiBuild’s role in adding to supply and ensuring affordability of new builds will remain under the spotlight, but with momentum beginning to build, there is optimism within the industry.
Market conditions have generally weakened, however we’re not expecting any form of a significant downturn based on current conditions.
Restrained growth is still the order of the day.
Nick Goodall is head of research at CoreLogic NZ
