House prices fall another 0.7% in May, CoreLogic finds

Wednesday, 31 May 2023

CoreLogic's house price index shows falls sped up from April to May, but they remain lower than the falls seen during 2022.

Property prices fell another 0.7% in May, putting them $121,000 below their peak, according to CoreLogic.

The fall marked an increased pace from April, however the property data firm maintained prices were likely approaching their floor.

Nationally, that put average values 10.2% lower than the same month last year, but still $194,000 higher than pre-Covid.

The CoreLogic House Price Index (HPI) is known to be more conservative than other measures, including a similar index from the Real Estate Institute, because it used three months of sales, which smoothed out recent trends.

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CoreLogic head of research Nick Goodall said moderating house price falls and the latest Reserve Bank indication that the official cash rate (OCR) had peaked at 5.5% were all positives for house prices.

“This has been an exceptionally fast and impactful monetary policy tightening cycle and the Reserve Bank has effectively said now is the time to pause, and wait and see how this plays out, as mortgage-holders continue to adjust to increased mortgage payments, reducing spending elsewhere in the economy,” Goodall said.

He said the current forecast peak might be more of an opportunity for the market to take its breath, than a hard ceiling.

But the pause would be a comfort to the roughly 50% of borrowers due to roll off fixed interest terms in the next year.

“Mortgage-holders should now be able to quantify the worst-case scenario for their mortgage payments which will give both them and their bank confidence in assessing serviceability test rates,” he said.

House prices have fallen significantly from their 2021 peak.

“More vulnerable sectors are likely to include first-home buyers who purchased around the peak of the cycle who haven’t had the benefit of time to accrue equity in their home or a savings buffer, along with lower-income households where balance sheets are likely to be more thinly stretched.”

In the main centres, Auckland house prices fell 0.8%, Wellington fell 0.7%, and Christchurch fell 0.6% - a reversal for the city that had until recently bucked the price-fall trend.

We talk to CoreLogic head of research Nick Goodall, and evaluate the signs that house prices are bottoming out, and the wind changes that could send them falling again.

Tauranga had another month of significant falls, with prices down 2.3% in the month, Hamilton prices fell 0.2%, and Dunedin prices stayed flat.

Goodall said, despite signs of moderation across parts of the country, all main centres’ prices had still fallen at least 1.9% over the last three months, including Christchurch which has generally been more insulated from significant falls in value in this cycle.

Wellington remained the worst performing market in recent times, with prices now more than 21% below the peak.

Goodall said as evidence mounted that the housing market was approaching a trough, increased consideration was being given to what happened next.

“Affordability, hindered by high prices and contractionary monetary policy will likely keep a lid on demand for the foreseeable future.

“More than 50% of the average income is required to service an 80% LVR mortgage in Aotearoa compared to 43% in Australia and if property values and interest rates now start to plateau, this is unlikely to improve.”