The Wellington region was the worst performing market, falling 21 percent from the peak, new data shows. Photo: 123RF
The housing market is probably close to bottoming out with some regions taking a much bigger hit than others, particularly Wellington.
CoreLogic's House Price Index indicated national prices fell 0.7 percent in May compared with April, and just over 10 percent over the year earlier.
Prices were $121,000 below their November 2021 peak, but still $194,000 higher than the March 2020 pre-Covid level.
The national average house value was $922,414, with Auckland's average topping the market at $1.3 million.
Interest rates stabilise
CoreLogic NZ head of research Nick Goodall said various indicators such as moderating house price falls and the latest Reserve Bank forecasts for the official cash rate (OCR), which was expected to have peaked at 5.5 percent, were positive signs for homeowners.
"This has been an exceptionally fast and impactful monetary policy tightening cycle and the RBNZ has effectively said now is the time to pause and wait and see how this plays out, as mortgage holders continue to adjust to increased mortgage payments, reducing spending elsewhere in the economy," he said.
"Mortgage holders and aspiring homeowners should now be able to quantify the worst-case scenario for their mortgage repayments which will give both them and their bank confidence in assessing serviceability test rates."
Credit bureau Centrix's latest data indicated mortgage arrears rose for the seventh consecutive month, with just under 19,000 people behind on repayments, which equated to 1.3 percent of mortgages, while the Bankers Association reported nearly 45 percent of mortgage holders were ahead on their repayments at the end of 2022.
"It seems the majority of borrowers are well placed to adjust to the higher repayments likely due to growth in wages and reduced spending elsewhere," Goodall said.
"More vulnerable sectors are likely to include first home buyers who purchased around the peak of the cycle who haven't had the benefit of time to accrue equity in their home or a savings buffer, along with lower income households where balance sheets are likely to be more thinly stretched."
For example, the Wellington region was the worst performing market, falling 21 percent from the peak.
"Perhaps the inconsistencies of the Upper Hutt market perfectly encapsulate a market trying to find its feet, with a quarter of peak value now wiped out," he said.
Outlook depends on affordability
Goodall said the outlook was mixed as the market appeared to be near the bottom of the cycle.
"Amid a stabilisation in the cash rate, slightly loosened loan-to-value ratio limits, reduced supply with fewer people listing their property for sale, strong net migration and a positive turn in Australia's housing market, there's confidence that the bottom is approaching," Goodall said.
However, he said affordability was an issue for New Zealand, as it would take more than half of an average income to service an average mortgage with a 20 percent deposit, compared with Australia's 43 percent.
"Affordability, hindered by high prices and contractionary monetary policy, will likely keep a lid on demand for the foreseeable future."
Investors could become more active
Goodall said the market could find support from investors anticipating a National-led government.
However, he said the phased-in removal of interest deductibility against rental income, increased regulation favouring tenants and land supply reform had potential to suppress the appetite for investment in existing properties.
"Indeed, there appears to have been a change in investor behaviour due to the interest deductibility exemption for new builds.
"During the first quarter of this year, 34 percent of settled new builds went to mortgaged investors, while only 19 percent of existing properties went to the same group," he said, adding that was a change from earlier years, when investors took a 28 percent share of both new and existing properties.
Average asking prices may have hit the bottom of the trend after a turbulent few years. After peaking in January 2022, average asking prices have steadily decreased.
But after a slight lift in March, asking prices have remained flat for the last two months. Spokesperson for realestate.co.nz Vanessa Williams believed the country might have reached a so-called 'bottom' of this trend or, at the very least, a turning point.
The online property portal's latest data indicated the average asking price for houses was up more than 22 percent on pre-Covid levels, though the number of new listings was at a 16-year low.