Wellington posted the second largest home value drop of New Zealand’s main centres this quarter
The latest QV House Price Index shows New Zealand housing market is under increasing pressure from rising interest rates. Loan affordability constraints are limiting buyers, and those who are in the market are spoilt for choice as listing levels far outstrip demand.
Wellington posted the second largest home value drop of New Zealand’s main centres this quarter.
Residential property values dropped by an average of 3.6% over the three months ending 30 April 2022, with only Palmerston North (-5.4%) topping it in the latest QV House Price Index. The largest average declines were in Upper Hutt (-8.2%) and Hutt City (-6.6%); the smallest average drop was in Wellington city (-2.3%).
Local QV senior consultant David Cornford said values continued to decline across the Wellington region, while the average number of days that it took to sell a home continued to increase. The urgency previously seen in the market has dissipated and we are seeing significantly more offers which are conditional, he said.
The softer market is due to significantly more stock being available, increasing interest rates, and buyers being worried about over paying. A lot of players are sitting on the sidelines now, taking a wait and see approach, while vendors are having to be realistic if they want a deal done. In many cases, we are seeing price drops come through after a property has been sitting on the market with limited interest at the advertised level, he said.
It is clear that we are now in a buyer’s market and this presents good opportunities for first home buyers looking to get into the property market, Cornford added.
QV General Manager David Nagel commented: It’s no surprise that the largest declines are occurring in locations that experience the strongest growth over the past couple of years. These markets were the first to become overheated and that makes them more susceptible to a value correction as rising interest rates, tightening credit and affordability concerns start to kick in.
Palmerston North and Wellington are showing the largest three-month value reductions at 5.4% and 3.6% respectively. Dunedin and Hastings, both at 3.4% reduction in values, are not very far behind.
Only 5 of the 16 major urban areas that QV monitors have shown an increase in three-monthly house price value, with Marlborough (3.4%) and Queenstown Lakes (3.2%) continuing to defy the downward trend in quarterly growth. Queenstown is the only major urban location to record an increase in the rate of value growth compared to last month.
Falling attendances at open homes and declining auction clearance rates have been well publicised, demonstrating a swing in the balance of power between vendors and purchasers. Developers are feeling the pinch, especially in Wellington and Auckland, with off-plan sales quotas not being met, compounding the impacts of materials and labour shortages, Nagel said.
A big part of the three month value reductions occurred in late March and April so we expect to see a gradual escalation of value declines in the coming months as vendors wanting to sell their properties are forced to meet the market. This is a trend that’s likely to spread across all of New Zealand as listings continue to outstrip demand in the majority of New Zealand towns, he said.
It’s difficult to see things getting better any time soon with interest rates forecast to rise further in response to inflationary pressure, while net migration is likely to be negative for the rest of the year as the borders open up. Fortunately we have a well insulated banking sector with LVRs having been in place for much of the past cycle and with the country at almost full employment. The likelihood of wholesale mortgage defaults is low, he said.
Despite the latest quarterly value reductions, annual value growth continues to track positively with the average property in New Zealand increasing in value by 14% since April 2021. The Canterbury region has recorded the highest annual growth at 28.4% while the lowest growth has occurred in the Wellington region at just 7.1% growth over the past 12 months.
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