Albany, one of Auckland's faster-growing areas. Photo / Michael Craig
Albany, one of Auckland's faster-growing areas. Photo / Michael Craig
House values have recorded their biggest fall in 14 years, putting us back to 2008 and the global financial crisis when it comes to the severity of the retreat, according to new data out today.
Nick Goodall, CoreLogic NZ research head, said national house values had just recorded their biggest quarterly drop since 2008, when the market was in retreat from the global financial crisis.
CoreLogic's House Price Index fell 0.9 per cent in July but 2.5 per cent in the May-June-July quarter, second only to the 3.4 per cent drop recorded in October 2008, he said.
The information comes after Auckland's largest agency, Barfoot & Thompson, yesterday recorded its lowest sales volume for a July in 22 years, as midwinter lulls and rising interest rates take their toll.
Peter Thompson, managing director, said yesterday only 611 residential properties in Auckland and Northland were sold last month.
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In January, the agency sold 801 properties, in February 750, in March 1180, in April 615, in May 782, in June 684 and in July just 611. Average prices fell to $1.23 million last month, down 5.4 per cent on the average price for the previous three months, Barfoot & Thompson said.
The CoreLogic data is not sales, but valuations. Those, too, are in retreat.
Goodall said: "Housing affordability remains significantly stretched despite values falling, with the combination of high prices, following a significant upswing in values, and increasing interest rates restricting the number of buyers who are able, let alone willing, to borrow the sums of money required to buy property."
Loan-to-value restrictions also sit at their tightest setting on record, with banks remaining below the allocated 10 per cent speed limit. The increase in listings on the market over the past year or so has also switched pricing power towards buyers, he said.
Nick Goodall of CoreLogic NZ. Photo / supplied
Property values fell in July in all six main centres: Auckland down 4 per cent in the quarter to July with an average value of $1.4m, Hamilton down 1.8 per cent with an average value of $875,000, Tauranga down 2.4 per cent with an average value of $1.15m, Wellington down 6.7 per cent and an average $1.03m, Christchurch down 1.3 per cent quarterly and an average $771,000 valuation and Dunedin down 3 per cent with an average $673,000 valuation, CoreLogic said.
Auckland values remain at least 7 per cent above the same time last year, but quarterly falls of 4 per cent or more in the most populous areas show the tide has turned here, Goodall said.
With affordability unlikely to improve significantly while interest rates continue to increase, the outlook for national values is to follow a similar path to the first half of this year for the rest of this year, he expects.
"The relatively controlled nature of this downturn is unlikely to ring alarm bells for those at the Reserve Bank especially after such a strong upswing in values prior to the end of 2021. Trying to get control of inflation, through OCR increases is likely to remain their number one priority for now," he said.
That probably means discussion of LVRs loosening is premature, with the Reserve Bank most interested in financial stability, increasing the share of lower equity loans would not be the prudent option, especially with values continuing to fall in many parts across the country, increasing the likelihood of borrowers falling into negative equity, he says.
That this isn't necessarily a huge problem provided that borrowers are employed and can still service the debt.
"Indeed, it's probably worth noting that even if the LVR restrictions were loosened, they are unlikely to bring a significant lift in demand. The impact of loosening the LVRs while the market is increasing is very different to loosening them as the market is decreasing – even if borrowers could secure the funding, would they want to? With dented confidence and expectations of value falls to come, many would suggest not," he said.
A more likely scenario may be the introduction of debt-to-income limits at some stage next year, alongside a loosening of the LVRs.
This could be the Reserve Bank's version of giving with one hand and taking with the other, he forecast.
This could better protect the market from both sides of the lending equation. LVRs shoring up the lender with greater capital against their loans, while DTIs would limit borrowers' exposure to future market downturns, he says.
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