Welcome to this week's issue of the Weekly Property Roundup. Here are the news items of interest from the week.
New report: All the highlights of the 2024 NZ housing market - and predictions for 2025 (Source)
National house prices have fallen 5% since February, with Auckland and Wellington among the worst hit regions, CoreLogic reports in its overview of the housing market this year.
Its chief property economist Kelvin Davidson says early 2024 growth in property values appeared to be sentiment-driven off the back of the election, but that faded fast once it became clear interest rate cuts were unlikely until the second half of the year and as labour market confidence dipped, property prices did too.
Looking ahead into 2025, however, the market could be at a turning point, with Davidson pointing to “conflicting forces” giving room for optimism and caution.
On one hand, falling interest rates will bring much-needed relief to homeowners struggling to pay mortgages and give confidence to the wider economy.
On the other, job losses are expected to continue rising through until the middle of next year, and fear of losing jobs could stop families from going ahead with house purchases, something that could stifle house price rises by reducing buyer demand.
Davidson’s team was ultimately tipping house prices could rise by about 5% next year and there would be more activity in the market, with about 10% more homes being sold.
Our view: It has already been reported that we are nearing the bottom of the property cycle, so this speaks to house prices still decreasing. However, this will probably not be the case for too much longer, with interest rates falling and more people able to afford a mortgage, demand for housing should increase and ultimately prices will start to head the other way. The first quarter of 2025 will be an interesting one for house prices as it should show a turning point for the housing market.
No growth in residential rents for the last nine months - summer will be a big test for the rental market (Source)
Residential rents remained remarkably flat in October, with the national median rent stuck on $600 a week for nine months, according to the latest bond data from Tenancy Services.
The national median rent first hit $600 a week in December last year and rose briefly rose to $608 in January before dropping back to $600 in February, where it remains.
In Auckland (the country's largest rental market), the median weekly rent has settled at $650 since July, after briefly hitting a high of $670 in May. The differences in regional rents tended to be small and there was little, if any, rental growth across the country for most of the year.
Interest.co.nz says the big test in the market is coming up, with December through to March usually the busiest months of the year for new tenancies. That’s when any supply/demand imbalance is likely to manifest in rent movements.
Auction rooms remain busy heading towards the Christmas break (Source)
Auction activity remains high in the lead-up to Christmas, according to monitoring by Interest.co.nz.
It monitored the auctions of 497 residential properties last week (November 30 – December 6), slightly down from 504 the previous week and 517 the week before that.
However, there was almost no change in the number of properties that sold under the hammer over that three-week period, with their numbers remaining in a very tight range of 182-187.
Of the properties that sold at the latest auctions, 38% achieved prices that were greater than or equal to their rating valuations.
Aucklanders appears to remain the most cautious on price, with just 26% of sales in the region achieving their rating valuation or better.
Our view: In a hot property market auction tends to be the most popular sale method. Even though we are nowhere near being in a hot market right now, the fact that auctions are tracking well, and sentiment is positive is great to see. Moving forward we would expect auction rooms to get busier as the market starts to turn.
Value of commercial property sales lowest in a decade (Source)
Westpac Economics’ latest Australia and New Zealand report reveals the value of New Zealand commercial property has fallen 10% since the 2021 peak, after the sharp interest rate rises and weak economic activity of the past few years.
The number of commercial property transactions has also fallen, with the value of sales dropping below $6 billion in the year to June - the lowest in more than a decade.
Conditions in commercial property were expected to firm up over the next few years and while investor confidence had started improving, the bank expected the recovery to be gradual.
Our view: The commercial property market is facing similar issues to the residential housing market such as high interest rates and broader financial pressures. There has also been the challenge of increased hybrid working and some retailers turning to online sales instead of in-store. Industrial property has benefitted from online retailing and, according to a recent article from Kiwibank, since Covid industrial property has seen rents increase by 30%. The working from home phase is changing with many people returning to the office and, although online shopping may be here to stay, many stores have just added online sales to their capabilities.
Building cost inflation drops to lowest annual rate since 2015 (Source)
Building cost inflation is at its lowest level since 2015 as material costs and supplies settle back to normal, and builders cut their margins to get jobs.
The latest QV CostBuilder showed the costs of building a standard three-bedroom house in six main centres rose 0.6 percent in the last three months, and 1.5% over the year.
Supply chains were returning to normal, with some material prices falling and stability had returned to the house building sector, it said.
According to QV CostBuilder’s quantity surveyor: "Many of the catalysts behind the rapid residential construction cost growth we saw throughout the early years of the pandemic are now no longer a major factor.
"Record low interest rates are long gone, house prices have generally been on the wane for some time, supply chains have been re-established, and population growth has slowed.”
Australia housing market: The best (and worst) housing markets this year (Source)
Over in Australia, CoreLogic reports when it comes to capital gains, apartments vastly outperformed houses this year amid high interest rates and surging demand for freestanding homes.
The 10 best performing unit markets racked up between 40 per cent and 53 per cent capital gains, while the house markets with the sharpest increases rose between 34 per cent and 38 per cent.
CoreLogic’s head of research Eliza Owen said even though borrowing capacity might improve slightly if interest rates come down next year, growth momentum for apartment values would carry through as affordability was still a big obstacle for many buyers.
“There’s still an extraordinary premium on house prices in some cities, particularly Sydney which is sitting at around 70 per cent. So, I think we’ll continue to see demand being diverted to units,” she said.
Have a great weekend!
From the team at Erskine Owen.
