House prices begin to rise in key markets

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But CoreLogic said reaching a trough in the downturn would not likely lead to sudden widespread strong gains in house prices.
Photo: RNZ / Nate McKinnon

The property market downturn appears to be in its final stages as prices begin to rise in key markets, according to a new property report.

Property research firm CoreLogic’s house price index dropped 0.4 percent in July, the smallest rate of decline since January and a significant deceleration from 1.2 percent the month prior.

Chief property economist Kelvin Davidson said there were signs in key regions of prices stabilising or in some cases even growing in parts of Wellington and Auckland.

“July’s drop in prices at the national level may seem surprising, given the recent commentary about an emerging turnaround for the housing market,” he said.

“Market indicators started looking stronger in June and that positive momentum has continued in July.

“There are several key factors pointing to the trough for house prices, including a broad peak for mortgage rates, albeit some further tweaks by the banks can’t be ruled out, an easing in the CCCFA and LVR rules, still-high employment, and solid net migration flows.”

Davidson said the easing in LVR policy had already helped more low deposit investors into the market, such as those with 35 to 40 percent deposits who were previously locked out.

“We’ve also seen a pick-up in the volume of sales, stock on the market is dropping, and this is likely starting to result in the re-emergence of competitive price pressures,” he said.

Davidson said the trough for New Zealand’s house prices appeared to have arrived.

“There will be mixed views about this point we’re at in the cycle,” Davidson said.

“Existing property owners will no doubt be pleased but there are always two sides to the coin in the housing market, and aspiring buyers would clearly prefer to see further declines.”

But reaching a trough in the downturn would not likely lead to sudden widespread strong gains in house prices, Davidson said.

“Generally speaking, the ‘next phase’ of the cycle could still be relatively muted, given that affordability remains stretched, mortgage rates aren’t set to drop anytime soon, and also in light of the prospect of caps on debt-to-income ratios for mortgages early in 2024.”