House price falls gather pace again in February quashing hope of stabilisation - CoreLogic

Tuesday, 28 February 2023

The rate of house prices falls more than tripled in February compared to January, CoreLogic data shows.

House price falls gathered pace again in February, are likely to quash hopes of a stabilisation, property data firm CoreLogic say.

CoreLogic chief property economist Kelvin Davidson said values fell another 1% in February, which equated to the average house price falling a further $10,000 over the month.

February’s was the largest monthly fall since October last year, when prices fell 1.3%, and since the market peaked, house prices had fallen from an average of $1.04 million to $944,077.

CoreLogic recorded relatively minor price drops of 0.2% and 0.3% in December and January respectively.

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CoreLogic head of research Nick Goodall had predicted price falls to gather pace following the February official cash rate decision, which saw the OCR increase 0.5%.

Home values are now 8.9% below this time last year, and 9.5% below the market peak, according to CoreLogic, although other monitors put the figure far higher.

Davidson said the larger drop in home values was unsurprising and continued the weakening trend that has been in place for 12 to 15 months.

“Despite mortgage rates being at or close to a peak, the RBNZ’s (Reserve Bank’s) grim outlook for inflation and the economy more broadly was always going to weigh further on property values,” he said.

“February’s 50 basis point hike in the official cash rate is also likely to restrain demand.”

Although home loan rates had “generally peaked”, Davidson said floating rates and one-year fixed rates could still increase, because they reflect local financing conditions and the OCR more than longer term rates.

He said bank margins on home loans had been shrinking, meaning there was less ability for the banks to shrink their profits in order to compete for the mortgage market.

“Banks have had to compete hard to secure new business in a quiet market.”

CoreLogic house price falls in the main centres in February

Each of the main centres saw values drop in February, apart from Christchurch, where they increased by 0.4%.

Continuing the trend, Wellington house prices fell the most of any main centre, dropping 1.6% in February, putting them about 20% below where they were last year, with the average value at a little over $1.07m.

CoreLogic house price falls in February in graphical form

Auckland also fell more than average, with prices 1.4% down in the month, or 11% below where they were a year ago, with the new average sitting at just over $1.33 million.

Dunedin was 1.5% down in the month, 10.5% down on the year, and now had an average price of just over $633,000.

“After the post-Covid housing boom, affordability got so stretched that a downturn had become a very real risk by the second-half of 2021, when mortgage rates started to rise again,” Davidson said.

“We subsequently saw house prices start to fall, and even though mortgage rates may now have reached a generalised peak, it’s still expensive to be a new borrower and the extra repayments faced by existing borrowers who are repricing their fixed loans onto higher rates also remain a significant challenge.”

The Reserve Bank is now predicting the OCR will reach a peak of 5.5%, up from the current 4.75%.

The next OCR decision will occur in early April.

Davidson said a mild recession was also still on the cards, the unemployment rate was set to rise, and house prices were likely to drop further.

“However, in terms of any mortgage repayment stress, it’s important to note that their projections do not envisage a material fall in employment,” Davidson said.

“Instead, the unemployment rate is set to rise on the back of a larger labour force, with those new entrants finding it harder to secure a job.

“This implies a degree of insulation for existing employees and homeowners, but that new borrowing and house purchasing activity could remain fairly subdued.”

Significant near-term challenges

Davidson said the property market still had significant near-term challenges – just as mortgage rates appeared to be less of a drag on activity and prices, the next hurdle of an economic recession started to emerge.

“Around 50% of existing mortgages in New Zealand are currently fixed but due to reprice onto a higher rate in the next year or so – and that change in rates could typically still be in the range of two to three percentage points.”

“So far, this repricing process has been handled reasonably successfully, with non-performing loans still low. However, it’s also too early to sound the all-clear.

“Our forecasting model points to a mild rebound in property sales volumes in the second half of 2023, and the Reserve Bank’s projections for the CoreLogic House Price Index point to an effective trough late this year, followed by broadly flat prices in 2024 and only a mild rise in 2025.”