Property market teeters on brink

New Zealand’s property market is on the brink of a material drop in prices for the first time in nearly 12 years, real estate data firm QV says.

It has released its data for May. QV records information from legal sales, so has more of a lag than the Real Estate Institute statistics, which come from unconditional deals.

But QV general manager David Nagel said there were already signs of a shift in the market and a disconnect in expectations was developing between vendors and purchasers.

‘‘The last time the residential property market experienced a period of sustained decline was following the GFC where residential values fell almost 10 per cent over a six-month period in 2008.

‘‘The market is teetering on a cliff’s edge as we enter winter, the question now is, how far will the market fall?’’

Economists have predicted house price falls of anything up to 15 per cent as a result of Covid-19 – although the Reserve Bank warned prices could halve if New Zealand had to go back to alert level 4.

Nagel said the May data did not illustrate the dramatic impact Covid-19 had on the real estate sector since the country went into level 4 lockdown in March.

Over a three-month period, its data still showed prices up in almost every region it surveyed – only Rotorua was flat. Auckland was up 2.7 per cent, Wellington up 1.6 per cent and Christchurch up 1 per cent.

Nagel said, while the move to level 2 had provided an opportunity for real estate agents, vendors and purchasers to return to business, sales volumes were significantly affected and the latest update did not reflect that.

‘‘The key point we can note from the QV house price data this month is the gradual decline in quarterly growth in May, with 14 of the 16 major cities we monitor showing a reduction in the rate of growth since April. This trend is likely to continue as a greater proportion of post-lockdown sales are used in the house price index calculations,’’ Nagel said.

‘‘When we look at just the April and May transactions in isolation it shows a definite impact with post lockdown sales on average down by around 5 per cent on pre-lockdown levels.’’ he said.

‘‘Early signs post lockdown were quite positive, with a shortage of quality listings and a number of May transactions appearing to show the market picking up where it left off prior to lockdown . . .’’ Nagel said.

‘‘But the May bounce in sales volumes was likely the result of pent-up demand from six weeks of lockdown. We’re now seeing buyers exercising caution with many expecting greater volumes of listings to come on-stream later in the year as the full impacts of the economic downturn start to bite.’’

The average value nationally increased 2.4 per cent over the past three-month period, down from 3 per cent growth in April, with the average value now sitting at $739,539. This represents an increase of 7.7 per cent yearon-year, slightly down on annual growth last month.

ASB economist Mike Jones said the market was at the point in the cycle where people knew things were going to get worse but did not have any concrete evidence yet.

Sales activity was drying up, he said, which was a normal part of the standoff that happened between buyers and sellers when markets changed. ASB has predicted a 6 per cent drop in national house prices.

He said while migration had disappeared and the labour market had suffered a blow, the country was moving out of lockdown faster than some had predicted, with less economic damage. ‘‘It’s not all doom and gloom.’’