Is The Property Market Boom Over In New Zealand?

Friday, 8 April 2022, 5:41 am
Press Release: Kalkine

Summary

• Property prices seem to be taking a breather in New Zealand following a massive boom during the pandemic.
• The CoreLogic report suggests that property values have declined in Wellington and Hamilton.
• Interested homebuyers seem to be waiting out the remaining boom to lock in lower prices in the future.

The New Zealand property market has had a long history of soaring prices and declining affordability. Homebuyers crowded the property market during the pandemic amidst record-low interest rates, creating an imbalance in the demand and supply dynamics. However, the property market is observing a gradual slowdown, leaving many concerned about an imminent lull in the sector.

Sellers are scouring the markets in search of an opportunity to make a profit as prices tank slowly across major cities. The latest CoreLogic report suggests that year-on-year growth in property prices stood strong at 23.4% in March 2022, but the month-on-month data reflected a decline.

The property consultant’s House Price Index (HPI) eased further in March to 0.7% from a February reading of 0.8%. The market saw the lowest monthly rate of change in property prices in March 2022 since the initial COVID enforced nationwide lockdown in August 2020.

Notably, areas that had seen booming property prices are now facing the risk of increased vulnerability and crashing home values. Declining prices have been a concern for sellers and even buyers who have taken out substantial mortgages for properties that are declining in value.

In this backdrop, let us discuss some factors that indicate New Zealand’s housing boom is losing steam:

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Demand-supply dynamics continue to shift

As prices have started declining from sky-high values, buyers are now waiting to lock in the best deal possible. This has inadvertently increased the time taken to sell a property, especially in Wellington. The CoreLogic HPI report shows that property values have declined 0.8% over March in Wellington. Similarly, a drastic shift in market direction was visible in Hamilton, where housing values were 0.9% down in March.

At the same time, values in Christchurch have stagnated while dropping by 0.2% in March. In Dunedin, property values have fallen significantly by 1.3%. Dunedin also reported an incredibly slow annual growth rate of 12.5%, which starkly contrasts with the city’s peak annual growth rate of 23.2% achieved only six months ago.

With prices tipping from their previously recorded peaks, buyers are gaining more bargaining power. Those looking to buy might gain further negotiating power in the coming months if prices continue to decline. At the same time, the prevailing slowdown in property demand has increased the time taken to sell a house for sellers. These demand-side pressures are outpacing the supply-side disruptions in driving the overall market movement.

Fear of overpaying on the rise

The current housing market scenario is in sharp contrast to the prior conditions where exorbitantly high prices pushed buyers away from the market. Homebuyers can expect a more welcoming environment in the property market as sellers hunt for a good deal.

Meanwhile, buyers may continue to face tighter conditions on the financial side, which have led to a recent cooldown in demand. Squeezing credit and increasing interest rates over the recent months have significantly reduced the pool of buyers. Those holding heavy unpaid mortgages stand at risk of tougher conditions ahead amidst the possibility of a further interest rate hike.

In this chaos, the remnant buyers of the first housing price boom are yet to quench their thirst. These buyers might be waiting out the remaining boom and looking to profit from falling prices. As fear of overpaying overtakes the fear of missing out, buyers seem to be holding themselves from locking into a deal that could become much cheaper in a significantly lower time.

In the meantime, some cities have steered clear of the reversal in property price growth. Notably, housing values in Auckland continued to rise in March at 1.4%. However, southern parts of Auckland showed a weaker growth than the rest during the month.

If prices decline further in the coming months, property demand could rebound and strengthen. However, the push for property demand might not be as pronounced this time as during the low-interest-rate environment. Moreover, the shift in the existing market dynamics could bring back some negotiating power in the hands of property buyers.

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