House prices fall 0.9% over the quarter

New Zealand house prices have continued their downward trend, with prices falling in most parts of the country in recent months, according to CoreLogic.

The national median house price fell 0.9% over the three months to May, which is the biggest quarterly decline since 2010.

Looking at a more local level, house prices fell in four of the six major cities over the quarter:

• Wellington = down 4.0%
• Hamilton = down 3.8%
• Dunedin = down 2.3%
• Auckland = down 1.8%
• Tauranga = no change
• Christchurch = up 0.5%

Affordability and rate rises are affecting buyer demand

There are two main reasons why prices are going backwards in much of the country.

The first is affordability. Prices can only rise for so long, until buyers stop being able to bid up prices. New Zealand’s median house price is over $1 million, despite the recent declines.

The second main reason is rising interest rates. The official cash rate has increased 1.75 percentage points (to 2%) since October, which has flowed through to higher mortgage rates. That has made it harder for some people to qualify for a mortgage, and has reduced the borrowing power of those who can. Rates are expected to rise further, which will continue to sap demand.

As a result, it looks likely that house prices will fall further in the months ahead.

Prices have almost quadrupled over the past two decades

That said, it’s important to put these recent price declines in context, because house prices have sharply increased since the pandemic. Looking just at the 12 months to May, New Zealand’s median house price jumped 15.3%, according to CoreLogic. That included city-by-city gains of:

• Christchurch = 24.5%
• Tauranga = 21.7%
• Auckland = 16.4%
• Hamilton = 10.0%
• Wellington = 9.1%
• Dunedin = 7.0%

Nobody can say for certain what the future holds, but there’s a good chance that when the market bottoms out, the price gains at the start of the cycle will turn out to have been quite a bit larger than the price falls at the end.

That’s because property prices tend to rise over the long-term. Between December 2003 and May 2022, New Zealand's median house price increased 290%, according to CoreLogic.

If you’d like to refinance to a lower-rate home loan, or you’re wondering how future rate rises might affect your repayments, please get in touch.

Posted Tuesday 21 June, 2022.