QV data shows housing market 'transition point'

Monday, 12 June 2023

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.

The downward trajectory of house prices remained almost unchanged in May, according to Quotable Value (QV) data.

In the three months to the end of May, house prices fell 3.42%, compared to 3.46% during the three months to the end of April, the property data and valuing company reported.

Quotable Value (QV) operations manager James Wilson said it was still too soon to call this the bottom of the market.

Taking a longer-term view however, the most recent quarterly fall was less than the 3.9% fall the market experienced from January to March.

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“It’s the difference in trend from the last 12 to 18 months which saw significant rates of softening that is important here, as when combined with other stats released and anecdotal evidence which provides wider context, we may be beginning to reach a transition point towards a flatter [market or] pathway to return to positive conditions.”

These other stats included interest levels within auction rooms, continued strength of first-home buyer borrowing, and a return of positive net migration.

“It is still very early days and sales volumes remain low across the country. We would still need a few more months of continued softening to claim conclusively that we’re at the bottom of the market,” Wilson said.

There were 10,307 sales in May, down from 14,641 in the same month the year before, and well below the 22,220 in May 2021.

Many commentators, including ANZ’s economists have been predicting the bottom of the market is approaching, or already here.

QV data correlates with CoreLogic’s most recent house price data, which showed a 0.7% fall in May.

QV said the market could be in for some volatility in the months ahead.

QV estimated the average house price now sat at $888,930, which was 13.7% lower than the same time last year and 20.2% higher than its pre-Covid-19 level.

The average rate of home value decline slowed in 11 of the country’s 16 largest urban areas over the last three months – including in Auckland, where prices fell -2.3%, Hamilton, where they fell -2%, Christchurch, -2.5%, and Wellington, -2.6%.

Queenstown bucked the trend amongst the main centres, with home values rising by an average of 2.4% for the May quarter.

Wilson said the market was unlikely to surge once it hit bottom.

“When the market does hit bottom, we won’t suddenly see values begin to increase across the board,” Wilson said.

“Instead, what we’re likely to see is a bumpy landing, with some centres reaching the bottom of their descent before others.

James Wilson was previously head of valuation for Valocity, but has now joined QV as operations manager.

“Certain locations and property types may begin to experience some growth sooner rather than later, whereas others may remain flat or continue to soften for a period.”

He said areas that appealed to first-home buyers and investors would likely be the first to rise.

“Most areas of the country that have experienced positive value growth or held relatively steady over the last quarter have had average values of well below $1 m. In other words, ‘first-home buyer territory’.”

Wilson said investors continued to adopt a wait-and-see approach in many markets.

“Indications that the official cash rate has peaked could entice them back, with valuers and real estate agents at the ‘coal face’ of the market already reporting a small up-tick in interest.”

“Time will tell whether we do see a growing number of investors represented in sales volumes over the next few months, competing for entry level stock.”

Positive net migration numbers might add some tailwinds into the housing market over time, but that was likely to begin in the rental market.

“Now, as we head into winter, many eyes will turn to the election to see if any new or unforecast policies begin to emerge that may impact certain buyer types more than others.

Despite National promising a raft of investor-friendly policy changes, including dialling back the bright-line test to two years and handing back a key tax advantage, Wilson said history showed elections don’t typically have a significant impact on the housing market.

“Most likely, we’ll see some buyer types remain on the sidelines until the result comes in. But it looks likely we’re in for a few more bumps in the road between now and then.”