1 Sep 2021

Lockdown could lead to another spike in house prices - CoreLogic

5:56 am on 1 September 2021

The property market continued to lose momentum in August, but the current lockdown raises the prospect of a short-term spike in house prices.

Housing in Mount Victoria, Wellington.

National average property values increased nearly 27 percent in the 12 months to August. Photo: RNZ / Dom Thomas

The CoreLogic House Price Index (HPI) shows nationwide values rose 1.6 percent in August, which was a slight reduction on the 1.8 percent growth in July.

National average property values increased nearly 27 percent in the 12 months to August, taking the average to $937,148.

Growth slowed to 1.6 percent.

Growth slowed to 1.6 percent. Photo: CoreLogic

CoreLogic head of research Nick Goodall said the market was transitioning to a more sustainable form of growth, but warned that the recent lockdown had resulted in fewer listings.

"This further tightening of supply could lead to some temporary renewed upwards price pressure as pent up demand competes for limited listings," he said.

However, any reacceleration of house price growth, should it eventuate, would be short-lived, he said.

"Apart from the prospect of rising mortgage rates and the impact of tighter credit policies, it's important to factor in the weight of worsening housing affordability."

As property values rise faster than incomes, Goodall said, the cost of purchasing a home would simply become out of reach for a growing number of would-be buyers, especially as increasing interest rates start to impact the amount of money people can borrow.

'Support not stimulation'

Goodall said the policy response to the latest lockdown had been more supportive rather than stimulatory, which decreased the likelihood of soaring asset prices once lockdown restrictions eased.

"In fact the current [loan-to-value ratio] settings are tighter than prior to the initial lockdown (40 percent deposit requirement for investors) and the Reserve Bank has been very clear that the next move for the [official cash rate] is up."

Rotorua values dropped by 0.9 percent.

Rotorua values dropped by 0.9 percent. Photo: Core Logic

Meanwhile, property values had continued to grow in all of the main centres, except for Hamilton, where prices fell 2.8 percent over the month to $782,774.

"Affordability is once again a factor, with the average property value almost eight times the average income and the time to save a deposit now exceeding 10 years showing just how hard it is for new entrants to the market," Goodall said.

Elsewhere, Whangārei and Rotorua also saw property values decline by 0.2 percent and 0.9 percent respectively.

Across the rest of the country, 12 of the 15 provincial markets recorded growth.

Tauranga reported the sharpest monthly rise in price growth, up 2.6 percent to $1.02 million.

Get the RNZ app

for ad-free news and current affairs