Property values across New Zealand are up year-on-year, but first-time buyers still have the advantage.
According to the latest OneRoof-Valocity Home Value Index data, the average property value in New Zealand increased by 3.33% year-on-year to NZ$975,000. However, there has been a 0.2% decline in house prices over the past three months. Nonetheless, this slowdown in price growth will make more homes more accessible for those trying to get their foot on the property ladder.
Chart: Changes in house prices by region in New Zealand over the past three months
The most affordable areas in the country continue to see the strongest home price growth. Over the past three months, the average property value on the West Coast has increased by 4% (to NZ$468,000), and South Rand has grown by 3.4%, bringing its average property value to NZ$551,000. First-time buyers in both regions dominate, although the volume of inquiries from outside buyers has also surprised agents in recent months.
Christchurch and Dunedin were the only major cities to see house prices increase in the last three months, with increases of 0.5% and 1.8% respectively. The average property value in both cities is relatively low, and there are many homes for sale that are suitable for first-time buyers, which has somewhat eased the pressure on the market.
Chart: Changes in the top 10 blocks of average prices in Auckland over the past three months, one year and five years
Still, higher-priced megacities are feeling the pinch as homebuyers retreat from the mid-segment of the market. At the regional level, the regions with the biggest house price growth over the past quarter were Tapanui in Klusa (up 9.9% to NZ$423,000), Hokitika in Zealand (up 8.8% to NZ$471,000) and Mangawhai in Kepara (up 8.1% to NZ$1.4 million).
While the number of new listings is still 19% higher than the same period last year, it is down 3.89% from April. The number of new listings has also decreased over the past month, but is still comfortable compared to the same period last year (up 45.4% in the case of Auckland). From July 1, the relaxation of loan-to-value ratio (LVR) rules will be another positive for first-time homebuyers, allowing banks to make more low-down-payment loans.
However, the market still faces challenges. The government has scrapped the first-time home buyer subsidy program, while the much-talked-about debt-to-income ratio (DTI) rule will come into effect on July 1, tying homebuyers more closely to how much they borrow with their income. 1
Chart: National housing price trend in New Zealand since 2018
According to an analysis by economic commentator Tony Alexander, the current state of the economy means the following for investors and first-time buyers:
Investor retreat: Investor interest rose after first-time buyers entered the market in large numbers in early 2023, but then disappeared. Still, they are in communication with mortgage brokers because of the need to manage mortgage rate fixing in an environment where the next significant rate change is expected to be down.
Lending Strategy: If buyers need to borrow now, they are likely to borrow short-term, according to Alexander, as many believe the central bank has overtightened monetary policy and will quickly lower interest rates later this year.
Investors as sellers: Many expect a large number of investor sellers to emerge when the bright-line test changes from 10 years to 2 years from July 1.
House Price Trends: Alexander said he struggled to find reason to believe home prices would rise in the winter and spring. But by the summer, things may start to look better as interest rates fall. When people realise the contraction of the construction industry and the migration of many tradespeople to Australia, 2025 is likely to see stronger price growth.
Chart: Auckland House Price Index since 1992 and the magnitude of previous house price corrections
According to the latest data, New Zealand's property market has experienced a series of fluctuations over the past few years. While high home prices in the past have raised some concerns, current projections suggest that a housing market crash is unlikely in 2024. Here's what some experts have to say about the future of house prices in New Zealand:
- Mild recovery: A mild recovery is not so much a crash as a mild recovery. Six of New Zealand's leading financial institutions forecast average house prices to grow by 5.6% in 2024. For example, ANZ expects growth of 4%, Westpac expects growth of 8% and ASB expects growth of 7-10%. In addition, the treasury sector forecasts growth of 5.3%. ASB's senior economist Mark Smith also said the bank expects home prices to surpass their previous peaks in the first half of 2025.
- Drivers: House prices are rising due to population growth, lower interest rates, investor-friendly policies, and a slowdown in the pace of construction. Population growth will increase demand for housing, falling interest rates will put upward pressure on house prices, and investor-friendly policies will support the market. In addition, the slowdown in the pace of construction may also have an impact on house prices.
Overall, while past volatility may be unsettling, current indications are that New Zealand's property market will continue to grow at a relatively steady pace.
The above views provide an in-depth understanding of the current state of the real estate market and economy, which is valuable information for those considering entering the market.