Market round-up: The new normal for house prices in NZ

In Australia, the question is, how far will prices drop? In Auckland, there is no such drama, at least not in the figures. Fevered speculation around the performance of New Zealand’s biggest real estate market has led to predictions of a collapse in market activity, but what the latest data from OneRoof and Valocity shows is that Auckland’s property market has plateaued. The median value of all properties in the region currently sits at $898,000, down 0.1 percent on the quarter but up 0.2 percent on January 2018 (and again, down 0.2 percent on January 2017).

The reality is that Auckland’s market is soft and will continue to be, but an undersupply of residential housing and strong migration numbers will ensure the city doesn’t follow Sydney and Melbourne off the precipice.

New Zealand

For the rest of New Zealand, it is evident that affordability is driving much of the big leaps in value, but equally, there are signs that hesitancy is starting to creep into those markets, with value movement in the last quarter incremental at best in many of the smaller urban centres (only Wellington and Dunedin registered quarterly growth of more than 2.5 percent).

As of January 2019, the national median value stood at $598,000, up 5.7 percent on the year before but up only 1.4 percent on the previous three months.

The top five performing regions in terms of annual value growth were: Rangitikei, up 26.3 percent to $235,000; Opotiki, up 23.6 percent to $330,000; Whanganui, up 22.8 percent to $264,000; Tararua, up 22.2 percent to $215,000; and Gisborne, up 21.5 percent to $322,000.

What is obvious from these figures is that these regions are all coming off a very low value base and are finally catching up with more developed property markets, as first-home buyers priced out of larger urban centres and investors looking for better returns on their money turn their sights on smaller localities.

Nationally, sales volumes throughout 2018 were well down on those for 2016/17, and although there has been evidence of a small resurgence for some parts of the country, volumes at the start of 2019 are still 5.5 percent lower than at the start of last year.

A common way to gauge who is active in the market is to look at the breakdown of new mortgage registrations.

Those numbers reinforce the picture of a market that’s uncertain about the future.

First home buyers accounted for 28.4 percent of all new mortgage registrations in January (up 4.4 percent on the month before) but investor activity was down 4.8 percent, with investors (those who own three or more properties) accounting for 16.6 percent of new mortgages. Those who own two properties represented 11.6 percent of new registrations, down 2.3 percent on the month before.

The pull back from investors is benefiting first home buyers, who are stepping into the void.

Interestingly, investor activity increased in the regions that enjoyed the biggest leap in median values, accounting for more than a third of new mortgage registrations.

Residential building consents have remained relatively stable through the last three months. Consent volumes have generally trended upwards over the last two years and are now at the highest levels in the past 10 years. However, these numbers are still below consent volumes experienced during previous building booms.

Auckland

In Auckland, noticeable lifts in values can be seen in more affordable fringe suburbs, such as Wellsford (up 6 percent on last year), and areas where large residential projects are under way, such as Paerata (up 83 percent in the last quarter) and Glenbrook (up 17.1 percent on last year). Suburbs with higher-value lifestyle or coastal holdings, such as Omaha and Red Beach, are also enjoying positive movements, as are several inner-city suburbs whose value is tied to the schooling options they offer, such as Epsom and Ellerslie.

Residential dwellings have experienced the greatest change over the course of year, with median prices down 7 percent. Apartments have remained relatively stable, however, with median prices flat at 1 percent.

Overall sales volumes are down 40 percent on the same period last year - a clear sign that the hesitation that was evident at the end of last year has taken hold.

Investors (those who own three or more properties) continue to shy from the market, with their share of new mortgage registrations down 2.6 percent to 14.9 percent of new mortgage registrations.

First-home buyers’ share of new mortgage registrations has increased to 27 percent, but this larger number is more likely the result of other market participants withdrawing and Auckland salaries managing – just about – to stretch to new home purchases.

Consistent with the rest of New Zealand’s main centres, the number of refinancers in Auckland continues to increase, up 3.6 percent to 34.1 percent of new mortgage registrations, which indicates a further solidification of the “wait and see” sentiment in the market.

Whangarei / Northland

There’s buoyancy in Northland’s residential housing market, even though the rate of house price inflation has slowed.

The median value of all properties in Whangarei has in the last year risen 9.7 percent to $520,000, although growth has stalled somewhat in the past quarter to 2.8 percent.

Top performing suburbs include Ngunguru (up 16 percent year on year); Woodhill (up 15 percent); Whangarei Heads (14 percent); Whakapara (up 13 percent); and Tikipunga (up $435,000).

For most suburbs in the city, affordable housing appears to be driving growth but not in Ngunguru and Whangarei Heads, both of which have higher value coastal housing, so are popular with holiday home buyers and those seeking a coastal lifestyle options.

Two suburbs have declined in value over the last 12 months, Glenbervie and Mangapai, although it should be noted that these suburbs have grown significantly over the past two years and both have median values above the median for the region, meaning that the ‘catch up effect’ is not as prevalent.

Evident in the figures is the region’s strong appeal to first-home buyers, who now represent 29.6 percent of all new mortgage registrations. In line with other areas around the country, there has been a drop in buying activity by investors (those who own three or more properties) and multi-home owners (those who own two properties).

Investor activity in the area appears to be heavily influenced by a lack of confidence in future capital growth opportunities and a need for further information around big ticket infrastructure projects in the north, such as those driven by the Regional Development Fund.

Hamilton

After a period of strong house price growth, Hamilton has started to stabilise, with the median value of housing stock in the city currently sitting at $550,000, up 5.4 percent on January 2018.

Top performing suburbs include Hamilton Lake, Glenview, Enderley, Temple View and Silverdale, all of which are showing year on year value movement of approximately 9 percent.

At present, 58 percent of housing stock in the area is valued below $600,000, continuing the area’s appeal among first-home buyers, who represented 27.4 percent of new mortgage registrations in January 2019.

Investor activity also remains stable, with the buyer group accounting for 19.1 percent of new mortgage registrations in January – down a fraction on the same period last year.

The share of mortgages going to refinancers has rebounded in the last 12 months (this group now accounts for 27 percent of new mortgage registrations), which suggest people are inclined to take advantage of the low interest rates available to switch mortgages.

Similar to the other main centres across the country, Hamilton has experienced a significant decrease in sales volume – down 29 percent on January 2018 levels.

Tauranga

The boom years appear to be behind Tauranga, with house price growth softening in the last 12 months.

The median value of all properties in the city grew just 1.9 percent to $655,000 in the last quarter and 3.3 percent in the last 12 months. But growth is disparate at a suburb level, with four suburbs – Bellevue, Bethlehem, Matua and Tauranga Central – registering no growth or dropping slightly in both the annual and quarterly figures.

There have been some big leaps in annual growth for several other suburbs – Tauriko, up 18.7 percent, and Gate Pa, up 8.9 percent, are among the top performers – but most registered incremental changes in over the summer months.

Affordability is starting to become an issue.

Most sales in the city – about 54 percent – transacted between $600,000 and $1,000,000.

Only two suburbs, Gate Pa and Poike, now have median values of less than $500,000, which will put pressure on first-home buyers, who despite making up more than a quarter of new mortgage registrations in the three months to January 2019, are mostly active in fringe suburbs.

The slowdown in Tauranga’s house price growth will also be driving the drop in new investor activity, with investors now represent just 14.8 percent of new mortgage registrations. New investors know they can get a better return in lower priced markets such as Gisborne and Whanganui. Tax and regulatory changes affecting rental properties will likely put pressure on the rental market, as will the influx of students to the University of Waikato’s Tauranga campus.

Rotorua

Rotorua’s housing market has experienced strong annual growth, increasing 16.8 percent to $437,000 in the year to January 2019, but the quarterly figures indicate that buyer activity in the city has slowed, with values growing just 2.8 percent.

Suburbs with lower median values, and more affordable housing stock, are the ones that have enjoyed the biggest increases. Fairy Springs, Fenton Park and Fordlands – all of which have median values below $400,000 – saw annual growth of around 20 percent.

The fact that the bulk of buying and selling in the city takes place in the $300,000 to $400,000 bracket (30 percent), closely followed by transactions of less $300,000 (28.75 percent), indicates that affordability is driving much the activity in the market.

Supporting this is that the share of new mortgage registrations to first-home buyers increased last month, up from 25.1 percent to 26.4 percent. The share of new mortgages to investors dropped from slightly from 20.9 to 20.6 percent which may be a reflection of caution in the wider investment market rather than difficulties in Rotorua itself.

Their absence from the market will undoubtedly benefit first-home buyers in the city in the months ahead, as will the low interest rate environment and the easing of loan to value restrictions.

Palmerston North/ Whanganui

More affordable housing stock is behind the growth spurts in Palmerston North and Whanganui, which enjoyed median value increases of 12.9 percent and 22.8 percent respectively. Whanganui’s rise is off a much lower base but with both main centres recording median values of below $400,000 – well below in Whanganui’s case – it’s no surprise they have increased in popularity among first-home buyers, who represent more than 28.5 percent of new mortgage registrations in the area.

The price point will attract increased attention from investors, who will be looking for properties that offer better yields than those found in Hamilton and Tauranga.

However, the strong rate of growth both cities are experiencing will soften over the course of the year as the market levels off in the region.

Napier / Hawke’s Bay

Napier continues to ride the catch-up train, with the median value of all properties in the city rising 12.9 percent to $483,000 in the year to January 2019.

At a suburb level, six of the city’s 19 residential suburbs – Te Awa, Maraenui, Marewa, Pirimai and Taradale – saw annual growth of more than 14 percent. And Te Awa saw the biggest quarterly rise in median values, recording an impressive 10 percent.

With the exception of Maraenui – which didn’t budge at all – there appears to be little evidence of values stalling in Napier.

Affordability is a key factor in Hawke’s Bay continued growth – more than 40 percent of all sales occurred below $400,000 – but lifestyle is another.

Like Tauranga, Napier offers buyers a coastal lifestyle with sophisticated urban amenities, but the location also boasts award-winning wineries. What’s surprising is the fact that it has taken so long for values in Hawke’s Bay to catch up with other desirable locations around the country.

Investors accounted for over 17 percent of new registrations last month, with multi-home owners (two or more properties) accounting for a further 15.9 percent. First-home buyers remain the largest buyer group,representing more than a quarter (26.5 percent) of new mortgage registrations.

Overall, the comparative affordability of the area combined with historically low interest rates should support values at current growth levels.

Wellington

Compared to the other main urban centres, Wellington is the star performer, enjoying an annual lift of 8 percent in its median value to $755,000. In the Greater Wellington region as a whole, Lower Hutt recorded the biggest value movement (up 12.8 percent to $545,000). Not far behind were Upper Hutt (up 10.8 percent to $513,000); Porirua (up 10.8 percent to $583,000); and Kapiti Coast (up 9.3 percent to $578,000).

Lifestyle properties were the only property type to show signs of softening in the region, with Judgeford, a predominantly lifestyle suburb, registering the strongest downward movement (down 7 percent) in the last quarter. Suburbs with the highest value movement (between 16.4 percent to 26.4 percent) include Porirua East, Timberlea and Wainuiomata, however these percentages are reflective of lower base values playing catch up with the wider market.

Affordability and the region’s increased employment opportunities have made it more appealing to first-home buyers, who represented nearly a third of all new mortgage registrations (33.1 percent). In contrast, new mortgage registrations to investors continue to slide, and are now at 13.2 (was 15%) percent.

In line with the national trend, sales volumes for the region continue to trend downwards, coming in more than 20 percent below what they were in January last year.

Nelson / Marlborough

The Nelson-Marlborough housing markets have continued to experience stable value growth over the last twelve months, increasing 7.2 percent and 7.9 percent respectively.

However, it would appear that this rate of growth has stalled in the last quarter.

Nelson’s median value broke through the $500,000 barrier for the first time last year, and currently sits at $536,000.

Considering its location, climate and lifestyle options, it is still remains relatively affordable, with more than 60 percent of the housing stock valued below $600,000.

First-home buyers remain active in the city, representing more than 20 percent of new mortgage registrations, but also flexing purchase power are multi-home owners - those buying a second property – who accounted for 22 percent of mortgage registrations.

The median value for Marlborough sits at $435,000, with first-home buyers driving the majority of transactions in the region, accounting for 30.2 percent of new mortgage registrations.

However, sales volumes for Nelson and Marlborough were down compared to the same period last year, 11 and 12 percent respectively.

Christchurch

The Christchurch story hasn’t changed much since the last Property report. The median value in the city currently sits at $443,000, up 0.2 percent on the quarter but down 0.2 percent annually. The market reached its high point in 2017, when the residential rebuild reached its peak.

Given that more than 50 percent of the city’s housing stock is valued below $500,000, it’s no surprise that Christchurch appeals to first-home buyers, who made up the largest share of new mortgage registrations, at 31.6 percent. Investors, currently account for 19 percent of new mortgage registrations.

Sales volumes are also reflective of softer market conditions, down approximately 30 percent on the same period last year.

Overall, Christchurch’s residential market has reached a period of market stability as the residential rebuild appears to have aligned supply and demand levels.

Queenstown

Queenstown is no longer the South Island’s jewel in the crown when it comes to value growth but it still remains a strong performer and the South Island’s most expensive property market.

The median value for the area sits at $981,000, up 5.1 percent on the year before. However, the market hasn’t moved in the last quarter, which indicates a softening in the market.

Sales activity in the area also appears to be softening, with sales volumes in the six months to November well down on the same period last year. Building consent numbers have been trending downward since late 2017, however now appear to have stabilised through 2018.

Overall the Queenstown property market is still characterised by a significant supply / demand imbalance.

This has supported significant value growth over the past five years, a trend which is expected to continue as both the resident population and tourist numbers grow at some of the fastest rates in the country.

Dunedin

The Dunedin residential property market continues to experience strong market conditions. The median value now sits at $417,000 which is 15.5 percent higher than the same time last year, but in the last three months this value increase appears to have stalled somewhat. Much of the strong house price growth can be attributed to the fact that the median house value in the area is coming off a very low base, meaning that the ‘catch up effect’ is still in play.

In terms of market activity levels, sales volumes are below the same time last year, down 6.5 percent.

The Dunedin property market remains popular among first home buyers who now represent 32.5 percent of new mortgage registrations. Over the last 6 months, there has been a decrease in registrations to investors, now 16.8 percent.

This may be due to the fact that the housing stock in Dunedin is considered very affordable when compared to other urban centres, with 66 percent of housing stock in the area valued at $500,000 or below.

Invercargill

Invercargill continues to record huge gains, with the median value of all residential properties in the city rising approximately 15 percent annually, although it is important to note that the increases are off a very low base, currently sitting at $262,000.

Buying activity from investors priced out of other markets, such as Queenstown, is bolstering prices but first-home buyers are still a significant force within the city, representing approximately 28 percent of new mortgage registrations in the last month.