New Zealand’s property market has continued its slide, with the average house price falling below $1m for the first time in nearly a year.
Property analytics company CoreLogic released its latest house price index on Thursday, which shows that in August property values fell 1.8% nationally, double the 0.9% fall recorded in July.
But fears of an impending mortgage crunch driven by a combination of rising interest rates and falling values have been played down, with one expert saying the strong labour market meant that most people would be able to weather the storm.
New Zealand has been plagued by a runaway housing market for years. Wellington and Auckland are among the least affordable property markets in the world, and homeownership rates have been falling since the early 1990s across all age brackets, but especially for people in their 20s and 30s.
But the three-month drop in values of 3.5% reported by CoreLogic is approaching the levels seen during the GFC, when falls bottomed out at 4.4% at the end of August 2008.
The average national house price of $991,674 was the lowest since the average cracked the million-dollar mark in November 2021.
The downturn had become firmly entrenched and evident across the entire country, as weary buyers hold back, said Nick Goodall, CoreLogic NZ’s head of research.
“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.
A restrictive lending environment, increasing interest rates and waning market confidence appeared to be warding off would-be first-homebuyers the most.
But buyers who managed to scrape together enough money to buy a home at the peak of the market in 2021, only to see their values plummet a year on and their housing expenses increase, may be feeling worried, Goodall said.
“We know that about 45% of all mortgage rates are due to roll over within the next year, and so many of those people will be coming off relatively low rates – from the twos and threes up into the fives – those people are certainly in for an adjustment.”
Most people will be able to absorb the costs through changes to their discretionary spending, Goodall said.
A loss of income, or not being able to service mortgage payments could lead to a mortgagee sale, which in this market may mean it is selling for less that what the buyer bought it for, which was “not an ideal situation” but within a solid labour market should not be cause for concern, he said.
Mortgagee sales remained low. There was a lift in the second quarter to 21 sales, up from 6 in the first, but they were still well below the peak of 777 in the second quarter of 2008.
Goodall said that credit arrears remain low, according to both the credit agency Centrix and the Reserve Bank of NZ.
Meanwhile changes to house values will not present an immediate problem to recent buyers, unless they are looking to sell. “Bankers are not going to come calling simply because the value of your property has fallen,” he said.
Many recent borrowers will have paid upwards of a 20% deposit on their loan, which would guard them against short-term shocks, he added.
