The downturn in the housing market is spreading beyond the major centres, as affordability and rising interest rates drive more buyers out of the market.
Photo: RNZ / Nate McKinnon
CoreLogic's House Price Index (HPI), a national measure of housing prices, fell 0.8 percent in April, which was the first drop since values dropped 0.2 percent in the August 2020 Covid-lockdown.
The property research firm said there was a 1.6 percent drop in Auckland values and a 1.5 percent drop in Wellington, including a more significant 3.0 percent fall in Lower Hutt.
There had also been a 2.9 percent fall in Dunedin values over the past three months, which was the greatest quarterly decline in more than 13 years.
"Outside the main cities there appears to be particular weakness across the Manawatū/Wanganui and Hawke's Bay regions with the Hastings market falling 2.4 percent, Whanganui down 2.3 percent and Palmerston North decreasing by 1.5 percent in April," CoreLogic head of research Nick Goodall said.
Christchurch was the only main centre to show any resistance from the weakening market, although values appeared to plateau rather than fall, he said.
"Affordability remains a key constraint on the market as increasing interest rates impact the number of eligible borrowers and the amount they can borrow.
"This is on top of tighter credit availability by way of greater scrutiny on borrower expenses through the CCCFA (Credit Contracts and Consumer Finance Act) changes as well as tighter loan-to-value ratio (LVR) restrictions continuing to bite."
Goodall said proposed changes to the CCCFA had provided some respite for would be borrowers, but it had not boosted bank lending.
The latest data from the Reserve Bank (RBNZ) showed banks were staying well below their allowed speed limits on high LVR lending, he said.
Although the Reserve Bank had deferred the introduction of proposed debt to income (DTI) restrictions, it remained a concern for some home owners.
"The justification seemingly being that there's no need to make further changes in an already-adjusting market, going through variable and uncertain times.
"For now, investors will be relieved, as they are the ones borrowing at high DTIs the most often."
In the meantime, the slowdown in the market appeared to be entrenched, although Goodall expected values would decline gradually as long as the labour market remained tight.
"Currently the labour market is tight, which likely means strong competition for people and should lead to higher wages."
There were a number of other risks to the housing market, including a political will to address the inequality between those who can count on the bank of mum and dad for support to buy a home and those who have to go it alone, he said.
In addition, there were concerns about rising building and labour costs, although investment in infrastructure to support Auckland's tight housing market was welcomed.
"Concern remains around the vulnerability of the development industry to withstand high material and wage costs, reducing property prices and increasing interest rates, however greater certainty on the pipeline of work should at least help with planning," Goodall said.