Housing market downturn ‘not just a blip’

Thursday, 1 August 2024

CoreLogic’s new Home Value Index puts the national median value at $827,515 in July.

The housing market is not just slowing, it is in the midst of another downturn with median values down by 2.5% from February’s “mini peak”, CoreLogic says.

Economists and agents alike have been talking about market activity hitting a soft patch, and flatlining prices for several months.

But CoreLogic chief property economist Kelvin Davidson says property values have fallen nationwide for five months in a row, and it is time to call it like it is.

“This is not just a blip in the recovery, it is going through a mini downturn, especially in areas like Auckland, Wellington and Tauranga.

“It is not something that is unprecedented though. We saw a similar trajectory after the global financial crisis when there were mini peaks and falls as the market recovered from the bottom of the cycle.”

House prices continue to fall across New Zealand.

The property research company has started using a different methodology for its data, and this month it has introduced its new Home Value Index, which replaces the House Price Index it used to publish.

It showed that values across all housing stock nationwide fell by 0.5% in July, and that left the national median value at $827,515.

Values were about 16% below the boom market peak of $982,918 in January 2022, but were still 19% higher than they were pre-Covid.

Davidson said people would notice the median value was down from the national average of $927,284 in the June index, which used the old methodology.

The reason for the difference was the change in methodology, and it did not mean that houses were nearly $100,000 cheaper in July, compared to the month before, he said.

“They are not, it’s just the statistics we are looking at are different. Our new methodology generates median values, and with the housing market median figures tend to be lower than average figures.

“That’s because they are not skewed by extremes, such as multi-million dollar mansions in suburbs. They are a middle reading of the market.”

The new Home Value Index uses hedonic methodology which measures the relationship between the values of all residential properties, and the values of a set of characteristics, including location, property type and bedroom numbers.

CoreLogic’s Kelvin Davidson says the new index has a quicker read on the re-emergence of soft housing market conditions.

It is reinforced by incorporating and revising the most recent 12 months of growth in a rolling window as new sales and listing data become available.

The previous index used “SPAR” methodology which compares the sale prices of properties to their CVs, the appraised values provided by government agencies.

Davidson said the new methodology was data heavy, but it improved the timeliness and accuracy in measuring changes to the market, and allowed for more and better analysis.

The first index demonstrated a quicker read on the re-emergence of soft market conditions across the country, for example.

But the change in methodology did not alter the fact that values had been falling since February, he said.

There were monthly and quarterly declines in median values in all the main centres, although Auckland had the biggest, with the median down by 0.8% in July and by 2.7% over the quarter to $1.09 million.

Wellington and Tauranga were not far behind. Wellington’s median value was down 0.7% in July and 2.7% quarterly to $837,425, while Tauranga’s was down by 0.9% and 2.3% to $925,166.

Auckland’s median value fell by 0.8% in July to $1.09 million, CoreLogic’s figures show.

Christchurch was the most stable of the main centres, down 0.1% in July and 0.7% on a quarterly basis to $691,888.

Davidson said with an environment of subdued economic growth and rising unemployment, and a knock-on sentiment effect from that, it was logical for the housing market to reflect that.

'Additionally, the stock of listings available on the market remains at multi-year highs, giving those buyers who are able to get finance the power when it comes to negotiating a deal and agreeing a price.”

“It’s not surprising to see that transactions are taking longer and sellers are having to give some ground to secure a sale.'

But a noteworthy shift in recent weeks was the general mood and commentary around the official cash rate and inflation, he said.

“With the Reserve Bank now moving towards an easing stance, it seems a matter of when, not if, the OCR is cut in 2024, and mortgage rates themselves have already been drifting lower lately.”

When rates started to drop further it would have a positive impact on housing market activity, he said.

Realestate.co.nz’s Sarah Wood says it is too early to determine if the price and listings changes signal a market shift.

Meanwhile, Realestate.co.nz has also just released its latest data, and it revealed the amount of homes listed for sale on the site was unusually high for July, with almost 7500 more listed than at the same time last year.

It also showed there was a total of 30,556 properties for sale, an annual increase of 32.3%, while new listings were up 31.3% annually, and 10 of 19 regions had a slower-than-average rate of sale in July.

The national average asking price on the site was $848,548 in July, and that was down by 1.4% on June, and by 2.3% annually.

Realestate.co.nz chief executive Sarah Wood said the national average had been relatively flat for the last year and a half, fluctuating between $860,000 and $890,000.

“It is too early to determine if these changes signal a market shift. Consumer confidence and interest rate adjustments will likely be key drivers of future market trends.”