Rate of house prices falls nearly doubles from May to June, CoreLogic data shows

Tuesday, 4 July 2023

The acceleration of price falls may take the wind out of the sail of commentators claiming the bottom of the market is here.

The rate of house prices falls almost doubled in June compared to the month before, CoreLogic data shows.

The property data firm’s House Price Index (HPI) showed June was the third month in a row that house price falls gained momentum, with prices falling an average 0.7% in May, 0.6% in April and then 1.2% in June.

The findings may call into question growing claims that the housing market had reached the bottom.

“The June result probably was a bit of a surprise to us, and will be a surprise to those that had already expected the bottom of the market had arrived,” CoreLogic head of research Nick Goodall said.

“We do expect a few more months of this volatility and some downward pressure on the market, but the key thing right now is we do expect different results to occur across the different parts of the country.”

Goodall said the acceleration in price falls illustrated the impact of a long and strong interest rate hiking cycle, as demand became constrained by unaffordable home loan rates.

“Rather than focus too much on the exact timing of the bottom of the market, we believe it’s more about assessing the key market drivers and recent changes in those drivers, when setting expectations of where the market is headed,” Goodall said.

“The flow of properties being listed for sale has been weak all year – tracking below each of the past three years. This, alongside property sales ticking higher, has meant the overall volume of properties on the market is reducing.”

Realestate.co.nz figures show, despite a 21% year-on-year fall in new listings in June, there are 24,675 properties on the market, which is at the higher end of the long-term average.

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.

Goodall said reduced supply, high net migration, looser credit requirements and near-peak mortgage interest rates had supported demand and provided the setting for a possible stabilisation.

”Of course, in the same sense, we’re not expecting a flood of demand to lead to a strong bounce back in prices by any means.

“Stretched affordability, due largely to still-high property values and high interest rates compared to recent history is likely to keep a lid on demand, which should lead to a much more stable and balanced market once the bottom is reached.”

Despite the continued fall, which had wiped $130,000 off the nationwide average house, values remained $183,000 higher than the pre-Covid.

CoreLogic’s HPI showed the decline was led by the Auckland region, where prices were down 3% in a month.

Auckland was in turn led by the central suburbs, where prices fell 5.1% in the month, and Franklin, where prices fell 6.1%.

New Zealand may be one of the first to exit the global housing market slowdown.

Values continue to record modest falls in both Wellington (-0.6%) and Hamilton (-0.2%), but the rate of change appeared to be moderating in Wellington in particular. The region experienced a significantly improved rate of change over the three-month measure

Christchurch values bucked the trend to rise 0.3% in June, although they remained down for the quarter, while in Dunedin prices fell 0.3% in June.

Wellington had seen the greatest correction during the downturn, and now sat at 21.8% below the peak – a correction of almost $250,000 on average.

“What the data is telling us is that housing market conditions remain diverse. While some markets may be moving through a trough in the cycle, others may have further to decline,” Goodall said.

“Nonetheless, we still believe it appears the worst of the downturn is generally over for most areas.”

ANZ economists have been among those saying the house downturn is probably over, predicting a 3% price rise in the second half of the year.

ANZ chief economist Sharon Zollner said her team preferred the Real Estate Institute’s (Reinz) HPI data.

When that data was seasonally adjusted, it showed price falls were “petering out” at the national level, she said.

Sharon Zollner says prices are too high but that doesn’t mean they can’t rise.

”The raw data that you would have seen in the Reinz own release showed a fall, but if you seasonally adjusted it was flat.”

Zollner said once wage price increases were taken into account, comparatively house prices were back to where they were pre-Covid.

”We have completely undone the Covid bump, they are still too high, far to high, of course they are, but as we were shown over the Covid period that doesn’t mean house prices can’t go up,” she said.

Goodall said the CoreLogic HPI was not seasonally adjusted, because while the season affected the number of sales, it had little impact on price.

CoreLogic’s HPI is averaged over three months, which typically made it less reactive but slower moving than the Real Estate Institute’s measure.

Goodall said October’s general election provided an unknown for the property market. The Reserve Bank’s official cash rate decisions would be another factor to consider.