New Zealand Property Downturn Appears to Be Near the Bottom

New Zealand Property Downturn Appears to Be Near the Bottom
Houses for sale and sold in central Auckland, New Zealand, on Nov. 25, 2015. Fiona Goodall/Getty Images
Rebecca Zhu
Updated:

New Zealand’s residential housing price slump may be nearing its end, but experts are warning that there is still a period of uncertainty and volatility ahead.

The latest data from Quotable Value’s (QV) House Price Index showed that falling home prices have slowed for the second month in a row.

Over the three months to May, they decreased by 3.4 percent nationally, putting the average house value at just under $900,000. This is 13.7 percent lower than the same time last year and 20 percent higher than its pre-COVID level.

But Q30V operations manager, James Wilson, believes the market had yet to hit its trough as it would require a few more months of continued softening to conclusively make this claim.

“When the market does hit bottom, we won’t suddenly see values begin to increase across the board. Instead, what we’re likely to see is a bumpy landing, with some centres reaching the bottom of their descent before others,” he said.

Areas that appeal to first-home buyers and investors would likely lead the country in the upturn, with Wilson noting that areas with relatively stronger prices in the last 12 months had higher first-home buyer activity.

Meanwhile, signs that the official cash rate has hit its peak may also begin to draw out investors to return.

“Time will tell whether we do see a growing number of investors represented in sales volumes over the next few months, competing for entry-level stock,” Wilson said.

But the most hesitation remains among “mum and dad” buyers, who are currently inactive.

But property researcher CoreLogic is more certain that the market is approaching the bottom.

“Amid a stabilisation in the cash rate, slightly loosened loan-to-value ratio (LVR) limits, reduced supply with fewer people listing their property for sale, strong net migration, and a positive turn in Australia’s housing market, there’s confidence that the bottom is approaching,” CoreLogic NZ Head of Research Nick Goodall said.

Suggestions that the cash rate has peaked will give borrowers more certainty in the short-term and enable current and future mortgage holders to calculate their financial bottom line.

But high prices and interest rates remain the biggest restraint on demand in the near term.

“More than 50 percent of the average income is required to service an 80 percent LVR mortgage in [New Zealand] compared to 43 percent in Australia,” Goodall said. “If property values and interest rates now start to plateau, this is unlikely to improve.”

He also warned that increasing regulations favouring tenants and less interest deductibility may have permanently changed the investor landscape.

As the country nears its general election, Goodall believes some investors may emerge in anticipation of a National-led government.

But Wilson notes that historically, elections don’t usually have a significant impact on the property market.

“Now, as we head into winter, many eyes will turn to the election to see if any new or unforecast policies begin to emerge that may impact certain buyer types more than others,” he said.

“Most likely, we’ll see some buyer types remain on the sidelines until the result comes in.”

Immigration Influx

One upward driving force for housing prices will be immigrants, with Statistics NZ revealing that net migration for the 12 months to April was a gain of 72,300 people.

“Strong net migration numbers may add some heat into the housing market over time, but it’s likely we’ll begin to see the impact of this on the rental market first,” Wilson said.

Consistent with pre-COVID migration patterns, the latest net gain of non-New Zealand migrant arrivals overshadowed its net loss of 26,100 citizens.

There were significant movements in the number of departures by citizens and number of non-citizen arrivals, up 64 percent to 53,600 and 377 percent to 144,000, respectively.

Over half of the citizens who left the country went to Australia, with a net loss of 10,200 people to the neighbouring country. From 2014-19, New Zealand’s net migration loss to Australia was about 3,000 a year, while the average during 2004-13, it was significantly higher at 30,000.

Australia’s rental and housing market is currently buoyed by immigration despite constantly increasing interest rates. Compared to New Zealand, Australia’s monetary tightening cycle has been significantly less aggressive.

Australia’s rental markets remain tight as supply cannot keep up with demand, while the CoreLogic home index climbed for the third consecutive month.
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