Prices show signs of slowdown

The October QV House Price Index out this week paints a “steady-as-she-goes” picture for many of our main centres, with sideways movement throughout the month of October.

This is the story for Dunedin, Tauranga and Auckland where there was less than 0.5 per cent value growth in each city.

A minor upward movement (0.7 per cent) occurred in the Wellington index and a slight downward shift in Hamilton (-0.6), while values in Christchurch continued to decline, down 0.2 monthly, 0.9 quarterly and 1.6 annually.

The persistent market slowdown in Auckland has now swung its annual growth rate into the negatives (-0.6) for the first time since April 2011. Within the Super City, Waitakere has seen the greatest drop in values over the last year, down 2.2, while the North Shore (-1.6) and Manukau (-1.4) are also in negative territory for annual value change.

The new Labour-NZ First-Greens Government brings with it an increased focus on the property market, which will likely mean further slowing as demand is curbed, particularly for property speculators.

The major factors causing the slowdown, which became evident from October 2016 are likely to remain. These include increased loan to value ratio (LVR) restrictions, tightened lending criteria from the banks and a slight lift in interest rates. Together with the unaffordability of property in Auckland (where the average value is a staggering $1.04 million), it’s unlikely we’ll see the same growth of the last few years occurring any time soon.

Property values aren’t as high in our other main centres, so while many of the main factors also apply, there is still a chance of value growth next year — especially in Wellington and Dunedin where listings remain at all-time low levels.

One of the key indicators of the future will be monitoring property investor reaction to all the proposed changes within the property market. And by reaction, I don’t mean words. The focus must be on their market behaviour, because unless we see property investors exiting the market, I think values are likely to hold up for now — especially in our larger centres where strong labour markets and population growth ensure that property demand remains strong.

Regionally, there are still some highlights of relatively strong value growth, namely in the Far North, Napier and Nelson where quarterly growth to the end of October is over 3.5 per cent. Tempering this, there are already signs of a slowdown in activity in Napier and much like a few months ago when Rotorua topped the charts, these centres also follow cycles and are unlikely to sustain this rate of growth.

With a new captain at the helm, time will tell if it’s smooth sailing or a turbulent crossing for NZ’s property market.

Either way, we’ll be watching investor activity closely.