It was another bloodbath in the housing market during May, according to the latest REINZ market data.

Tighter credit conditions, higher interest rates and a sharp increase in supply are hammering the market. Sales are slower to complete, property is staying on the market longer, and prices are dropping.

The national median selling price dropped from $875,000 in April to $840,000 – a $35,000 decline – and a month-on-month drop of 4 per cent.

The median property price for New Zealand, excluding Auckland, dropped 3.3 per cent from $755,000 in April to $730,000 in May.

In Auckland’s expensive central suburbs the median price dropped from $1.3 million in April to $1.18 million in May, a decline of $120,000, while the median price on the North Shore dropped $145,000 in May, going from $1,450,000 in April to $1,305,000 in May.

Apart from the deep south, house prices fell across the country. The REINZ House Price Index (HPI) fell 0.8 per cent, the sixth consecutive monthly fall, and annual house price growth slowed to below 4 per cent. Since peaking in November, the seasonally adjusted HPI has fallen 6 per cent.

Sales, too, seasonally adjusted across the country, fell in the month and were down 28.4 per cent on a year ago.

The median number of days to sell at 40 days managed to tick over the long-run average of 39 days.

As buyers sit out the carnage ringside, the supply of listed property trends higher. Rising interest rates are a big reason for the rapid cooling in the market.

Kiwibank says all the above indicates that house price falls are yet to plumb the lows of the current cycle.

Profits Disappear

Any profits investors made on their rentals since November have been wiped out.

The latest QV House Price Index shows house prices have fallen back to levels at the end of November last year.

Rising interest rates and credit constraints have taken a big bite out of the market over three months to the end of May.

The average home value dropped 2.2 per cent to $1,030,221 nationally over the past three months. It is the same quarterly drop recorded at the end of April.

While house values year-on-year were up 10.5 per cent, they were down from the annual growth rate of 14 per cent in April.

Wellington took the biggest plunge, down 4.9 per cent, while Auckland’s average value fell 3.3 per cent to $1.47 million. Hamilton was down 4.4 per cent. Napier and Rotorua, dropping 4.2 per cent and 4.1 per cent respectively, are not far behind.

In Auckland the biggest falls were in central city suburbs, down 4.5 per cent over the quarter. Papakura is down 4.1 per cent; Manukau down 3.7 per cent; North Shore down 2.7 per cent; Waitakere down 1.7 per cent; and Franklin down 1 per cent.

Continuing to defy the downward trend in quarterly growth are Queenstown Lakes, up 4.5 per cent, and Marlborough, up 1.1 per cent. Queenstown is the only major urban location to record an increase in the rate of value growth compared to April.

QV general manager David Nagel says there is no question prices are falling, especially now as buyers take the upper hand in negotiations. “It’s really just a matter of how much further values will fall before finding the new equilibrium.”

Stock Levels Up

A massive increase in the number of properties on the market comes at the same time as sales plummet.

Property website realestate.co.nz says the slump in housing sales has pushed stock levels up a whopping 77.6 per cent year-on-year nationally, a level not seen since 2019.

At the end of May the website had 26,301 residential properties available for sale.

In Wellington, which remained in a buyers’ market for the third consecutive month, stock levels almost tripled, up 187.9 per cent, during May compared to the same month last year.

Trade Me property data showed Wellington region properties for sale rose by a staggering 90 per cent in April alone.

Realestate.co.nz figures also show year-on-year stock levels also rose 168.2 per cent in central North Island; 148.3 per cent in Hawke’s Bay; 147.9 per cent in Wairarapa; and 147.7 per cent in Bay of Plenty.

The stock increases have impacted demand in some regions and taken some of the heat out of the market, says realestate.co.nz spokeswoman Vanessa Williams. “People are asking whether the demand for property will wane enough to see prices reduce.”

New house construction is continuing at breakneck pace, running at its highest level in decades.

Total activity rose 3.2 per cent in the March quarter, well ahead of the average market pick of only 0.5 per cent growth.

Stats NZ’s figures show underlying March’s rise was a 3.2 per cent lift in residential work. The supercharged construction boom is expected to continue for the next few years, but staff and material shortages are acting as a handbrake and costs are rising rapidly.

Strength has been widespread, with a particularly large amount of work in train in Auckland.

Westpac senior economist Satish Ranchhod expects building activity will remain at elevated levels, with particular strength in residential construction.

While building consents have been running at record levels, they took a dive in April, down 30 per cent on March figures but up 6.9 per cent compared to the same month last year. In the year to April 50,583 consents were issued throughout the country.

Most of the drop was for apartments, down 44 per cent compared with the same month last year, and retirement village units, down 42 per cent.

Terraced Trend

The long-term trend is for terraced housing – also known as townhouses – and they are nearly at the same number of consents as stand-alone houses.

While consents drop at this time of year, shortages of materials and labour have been a handbrake on how quickly projects can be finished with completion times stretching out.

‘It’s really just a matter of how much further values will fall before finding the new equilibrium’ David Nagel

“That’s left the country with a large and growing pipeline of work that will continue to support construction activity for some time yet,” says Ranchhod.

Auckland’s median house prices have dropped 9.3 per cent from its peak in November last year.

Barfoot & Thompson’s latest Property Market Report shows last month the median price of $1,125,000 in May. This is 4.9 per cent higher than in May last year; 1.4 per cent lower than April; and 2 per cent lower than the median price over the previous three months.

The average selling price was $1,189,779. Compared to the same month last year this is an increase of 6.8 per cent, but when compared to April’s average it was down 1.9 per cent and 2 per cent lower than the average for the previous three months.

“Sales prices are definitely starting to fall, but not dramatically,” says Peter Thompson, Barfoot & Thompson’s managing director.

“Last month’s sales results show vendors are accepting that if they want to sell they must reappraise their price expectations while buyers are realising that prices are not falling off the cliff edge.

“May’s average price is 7 per cent lower than the peak average sales price in November last year of $1,278,647 and the median price is 9.3 per cent lower than at its peak of $1,240,000.”

The realisation by buyers that prices are edging lower rather than falling rapidly resulted in sales numbers for the month reaching 782, up more than a quarter on those for April, says Thompson.

However, turnover remained lower than is normal for May.

New listings at 1,416 were in line with expectations and at month end Barfoot & Thompson had 4,701 homes on its books. While this is 50.6 per cent higher than in May last year, it is 3 per cent lower than April.

“The combination of solid new listings, modest sales and lower month end listings indicates some vendors not able to achieve the price they want for their property have delisted rather than lower their asking price,” says Thompson.

Of the homes sold, 15.2 per cent per cent were for less than $750,000 while 9.2 per cent were sold for more than $2 million and 2.7 per cent for more than $3 million.

In For The Long Haul

One of the defining features of independent economist Tony Alexander and property management company Crockers’ investor survey, which has been running since June last year, is that investors are in for the long haul and don’t intend to radically change plans.

Despite the popular image of property investment being driven strongly by a desire to ride the price cycle or buy and flick, it is not backed up by investors’ expressed aims. About 65 per cent of survey respondents say they are in it for the long haul.

In the latest survey investors’ buying intentions are not trending anywhere and neither are plans for selling. Although the percentage of respondents planning to sell has lifted to 24 per cent from 20 per cent in April and March, there is no true drift up or down.

Alexander says there is a shift in the level of interest by investors in either a new build or existing property. A record 56 per cent of those looking to buy say they will opt for an existing dwelling, up from a low of 44 per cent in November.

An interesting development amongst more buyers looking at purchasing an existing dwelling is a rise in demand for apartments. “Maybe this is being driven by expectations of returning tourists and students – at least for Auckland’s CBD.”

Of the 27 per cent who prefer new dwellings, the strong preference remains for a detached house or townhouse. Interest in new apartments is small. “Perhaps of comfort to the many developers of townhouses, in Auckland in particular, will be the continuing firm interest in such from investors,” says Alexander.

What is also clear from the survey is the gradual decline in interest by property investors undertaking their own development. “Frankly, in light of the worsening availability of key building materials such as plasterboard, rising costs and labour issues, it is perhaps surprising 17 per cent of investors still show a preference for doing their own projects.”