Rise in property values signals end to market downturn - CoreLogic

Property values have risen for the first time since March 2022, signalling an end to the housing market downturn, but recovery is set to remain slow, according to CoreLogic.

CoreLogic's national House Price Index for October posted the first rise in property values since March 2022, after rising 0.4% last month –— 0.1% higher over the past three months.

Signs of the emerging upturn were "pretty widespread" last month, with values in Hamilton and Christchurch rising by 1.3% and 1.1% respectively, CoreLogic NZ chief property economist Kelvin Davidson said.

Property values in Dunedin rose by 0.8%, while Auckland (0.2%) and Wellington (0.3%) also recorded increases.

Homes in Tauranga remained relatively flat, however, posting a minor drop of 0.1%.

"The key fundamentals for house prices have been looking stronger for a reasonable period of time now. October's data has brought that first increase at the national level, but it's early days and there's still a lot of diversity in market conditions across the country," Davidson said.

He said the incoming National government "seems to have bolstered housing market confidence, despite mortgage rates edging higher again recently".

The record net migration rise recorded in July this year has also bolstered the property demand, he said.

Davidson said "another factor in the housing market turnaround" could be attributed to the "continued strength of the labour market".

"While this week's official data for quarter three may show a rise in the unemployment rate, it will be due almost entirely to a larger labour force, not job cuts," he said.

"The resilience of employment has meant the vast majority of households have successfully managed to rejig their finances as they reprice from older, lower fixed rates, onto today's higher levels.

"The loosening in the CCCFA rules from May and slightly relaxed LVR settings from June have both also played a role, while at the same time, the flow of new listings remains low.

"As a result, there's been a re-emergence of some degree of competitive price pressures, as buyers attempt to secure a property in a market where there's a bit less choice."

While Auckland's average property value rose in October, the increase was not seen across all sub-markets.

Property values in Papakura surged by 2.2% last month, while Rodney, the North Shore and Waitākere saw values lift by 0.5%. However, there were modest falls in values in Auckland City (-0.1%), Manukau (10.2%) and Franklin (-0.3%).

"This patchiness in property values by sub-region, even though wider market averages have started to turn around, could well remain a feature in the coming months, in Auckland and elsewhere too," Davidson said.

"Housing affordability is still stretched in many parts of New Zealand, and 'higher for longer' mortgage rates won't do anything to ease that pressure."

Variability was also in play in the capital, where signs of growth have emerged in recent months.

While Porirua saw average values rise by 2.3% in October, Lower Hutt (0.3%), Upper Hutt (0.1%), and Wellington City (0.0%) "were more stable", he said.

The Kāpiti Coast, meanwhile, dropped by 1.4%.

The changes in property values were similarly diverse in the regions, with Rotorua, Gisborne, Whangārei, and Hastings recording solid increases of almost 1% or higher.

However, Invercargill, New Plymouth and Whanganui all recorded falls of at least 1%.

Over the past three months, New Plymouth dropped by 2.8%, while Hastings saw an increase of 2.7%.

While it appears "pretty likely" that property values will continue to rise in the coming months, Davidson said increases may not be seen in every month or location.

"This 'recovery' could remain fairly subdued by past standards, given that housing affordability is still problematic, mortgage rates aren't set to fall anytime soon, and that caps on debt to income ratios are still on the cards for 2024," he said.

While first home buyers "have remained a strong presence in the market" over the past 12 to 18 months, having recently hit "record highs in terms of their percentage share of purchases", he said, "mortgaged multiple property owners, including investors, have been quieter than normal".

The hardest hit, he said, was the "so-called Mum and Dad group", who "may be looking to buy their first rental or already have a modest portfolio".

However, he warned that first home buyers "could have some new competitive headwinds on the horizon" as some investors look to buy in order to lower their tax bill.

"But even with a smaller tax bill, low rental yields and high mortgage rates still make it tricky to get the sums to work on an investment purchase. As such, we don't anticipate a full-scale return by property investors," he said.