Recent house price movements
Just before Easter, REINZ released their monthly data for March containing the only price indices I pay any attention to – their House Price Indexes. These adjust for changes in the mix of dwellings sold from one month to the next and were developed through research by the Reserve Bank. They are based on signing of sale and purchase contracts and are therefore more up to date than other sources which use mainly changes in legal titles.
They tell us that across all New Zealand average house prices fell 2.1% in March after rising 0.5% in February and falling 1.3% in January and 1.5% in December. Here are the important things to note.
First, prices are not falling in a straight line.
Second, the average monthly decline for the three months of falls has been 1.6% which is less than the average 2% a month rise recorded between the start of 2020 and November last year.
Third, prices are only back to where they were in September and on average are 9% higher than a year ago.
Fourth, not all markets are performing in the same way with regard to price changes and you need to take specifics on the ground for your location before making any bold statements as to what is happening where you are.
Here at a high level are some of the regional developments. The following graph shows changes in the March quarter from the December quarter. We see that not all regions have falling prices. But note the weakness in Wellington – a region I have been warning about for some time as being over-valued and due for a correction.
If I were looking to purchase a property in Wellington, I would not necessarily sit out of the market thinking of re-entering when prices bottom out because none of us know when that is likely to be. I would keep looking but my focus would be on finding a property which ticked all of my desired attributes boxes. Price would be a secondary consideration.
Once I had identified a handful of properties which would meet my criteria, I might make one or two cheeky offers just in case a vendor was a nervous nelly or simply wants to get on with their lives. They might have already bought elsewhere.
Note Auckland’s 4% decline for the quarter (7.8% from November to March). I’m not all excited about that change from a pessimism point of view because of the unusual thing that happened just before Auckland hit its price peak in November. Average prices jumped by an unusual 13.2% in a five month period while rising “just” 9.7% in the rest of the country.
Auckland is pulling back from an unusual high of late last year which occurred in spite of the depressing forces of rising interest rates and a credit crunch.
For Auckland my pick is a price decline which will broadly end up looking like the rest of the country. There is special weakness risk associated with the boom in new townhouse construction which could exceed current demand at current prices, and the vulnerability to net migration outflows. But the city is not over-valued compared with the rest of the country.