Decline in property values continues
10th October 2008
Embargoed to 11.59pm
Sunday, 12 October 2008
Decline in property values continues
QV's September statistics for the residential property market report a 5.8% decline in national property values over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down on the 4.5% decline reported in August. The average New Zealand sale price for September was $379,854.
“Indications last month that a more optimistic mood had come over the market have since evaporated” said Mark Dow of QV Valuations. “We are moving into an economic recession and there is plenty of speculation that things will get worse before they get better. Uncertainty about the impact of the global credit crisis, the usual lack of activity prior to an election, and significant tightening of lending policies by the banks is contributing to pessimism in the property market and there is little expectation of any spring resurgence. The requirement to have a significant deposit will take many first home buyers and investors out of the market, reducing demand and putting further downward pressure on prices” said Dow.
Across the Auckland area property values are down 7.0% compared to the same time last year, declining further from the -5.8% reported last month. Hamilton City’s values have slipped slightly to -8.8% and Tauranga to -7.6%. The Wellington area has also declined further to -5.4%, Christchurch to -7.1% and Dunedin to -8.5%.
Most of the main provincial North Island centres are showing further declines in year on year value compared to those reported last month. Whangarei has declined further to -6.6%, Rotorua -6.4%, Napier -4.4%, Hastings -7.0%, New Plymouth -7.0%, Wanganui -5.5%, and Palmerston North -9.4%. Gisborne is the only centre to improve slightly to -10.1% compared to the -10.4% reported last month. In the South Island, Nelson dropped further to -4.0%, Queenstown Lakes to -5.3%, and Invercargill to -1.6%.
Property values in the Auckland region declined by 7% over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down further from the 5.8% decline recorded in August. The average sale price for the region decreased to $495,161.
“As anticipated, property values in the Auckland region continued to ease and are now showing a year on year decline of between -3.2% in Franklin and -7.9% in Auckland City. With recent negative economic news flooding the airwaves, the confidence in the residential market is likely to be battered further as we move forward” said Glenda Whitehead of QV Valuations.
“Until a couple of weeks ago, QV valuers reported that they were beginning to see a pick up in spring activity. However, the latest round of world financial issues, and potentially the influence of the school holidays, has left the market place very dull at present. Sales are evident where vendors are realistic or where they are in a forced situation. In cases where there is a great house and the right buyer the sale still achieves a healthy price in the better areas” Whitehead said.
“The low volume of property sales reflects the fact that many vendors have been unable to sell in the last few months, and some of these have now chosen instead to rent their property. The flow on effect of this is that more properties are available for rent, and in some areas of South Auckland, East Auckland and Onehunga there is now an over supply of rental property. This over supply is causing some landlords to drop rents in order to occupy the properties. Anecdotal evidence indicates that potential tenants have the luxury of choice in this market and properties that are not presented in top condition are left vacant for longer, even despite dropping rents in some areas” Whitehead said.
“Feedback indicates that many property investors can’t see the sense of selling at prices currently being achieved, as they would not realise an acceptable return on funds invested. Indications are that they are sitting on their investments and waiting for the predicted interest rate decline; and hoping that a resolution to the global credit squeeze will kick start the market again” said Whitehead.
Property values in Hamilton declined by 8.8% over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down further from the 8.5% decline recorded in August. The average sale price for the city increased to $353,465.
“Whilst 8.8% decline in property values represents a new low for the Hamilton region, the rate of the decline in property values (down a further 0.3% compared with August) is less dramatic than we have witnessed in the previous two months of the quarter” said Mr Richard Allen of QV Valuations.
“You may ask whether this means that property values in Hamilton City may be leveling off or whether the market might be taking a very short breather. Given the global financial crisis and credit crunch, high interest rates and the continued lack of confidence in the residential market that is continuing to curb demand, it is most likely the latter. We believe that the downward trend is likely to continue in the short term” Mr Allen said.
“The sharpest year on year decline in property values was evident in the Central City/North West Hamilton which decreased from -8.3% in August to -9.9% in September, and the North East area which moved from -7.3% to -8.0%” said Mr Allen.
“The average sale price for the city rebounded to $353,465 in September up from an eighteen month low of $335,292 in August. This increase is the result of a greater number of houses selling in the higher price bracket” Mr Allen said.
Property values in Tauranga declined by 7.6% over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down from the 5.3% decline reported last month. The average sale price increased slightly to $446,721.
“The decline in the property market has picked up momentum in Tauranga with no type of property immune. Whilst the market had been tracking poorly this year, it seems that over the last month it has hit a brick wall” said Shayne Donovan-Grammer of QV Valuations.
“The slowing of the property market is not good news for most home owners, particularly those looking to sell or those who are financially stretched. However, it represents good opportunities for some buyers. The declining property values may mean that some first home buyers will soon be in a position to enter the market or consider purchasing a property of higher quality or in a better location than what they were previously considering” Mr Donovan-Grammer said.
“I would recommend to the rental investor that in this market it is prudent to secure a property that produces a reasonable return and move away from the preoccupation of looking for short term capital gains” Mr Donovan-Grammer said.
Property values in the Wellington region decreased by 5.4% over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down from 3.8% decline reported last month. The average sale price for the region decreased to $424,098 from $437,061 in August.
“Declining property values continue in Wellington with no sign yet of the seasonal spring lift in activity and sale price. Any potential change to the present trend is being clouded by the uncertainty of the international financial markets. The downward trend in value is expected to continue until there is more certainty in the market and increased availability of finance” said Max Meyers of QV Valuations.
“The sharpest decline in property values in the Wellington area was evident in the Hutt City which decreased from -6.1% year on year in August to -8.6% in September. The smallest decrease was on the Kapiti Coast which moved from -2.0% to -2.8%” said Mr Meyers.
“At present there are very low levels of sales occurring, and until buyers have more confidence about finance and property values, we expect prices to continue to decline. This market environment creates some particularly good buying opportunities that we expect to see more of in the next few months” Mr Meyers said.
Property values in Christchurch decreased by 7.1% over the last year (calculated over the three months ending September 2008 in comparison to the same period last year) down from the 5.8% annual decline reported last month. The average sale price for the city decreased to $356,357 for September, a decrease of $1,657 from August.
The sharpest decline in property values has occurred in the Eastern Suburbs which has declined 8% year on year, and in the Central City and Northern Suburbs which declined 7.6%. “There are two forces influencing the decline in these areas. Firstly, we are witnessing a flight to more quality homes in this buyers market, with investors and first home buyers being more discerning. Secondly, there is more pressure at the top end of the market in the tough economic times we are currently experiencing” said local QV manager Mark Dow.
All locations in Canterbury have declined in value from that reported last month. “The reductions in sale prices appear to have slowed slightly, but the direction is still negative. Given the latest economic forecasts and the state of the finance sector the prices in the residential housing market are expected to decline further for some time yet. The traditional home lenders have also tightened their lending policy which will further reduce the pool of potential buyers, leading to more downward pressure on prices” Mr Dow said.
“Spring traditionally brings an increase in activity in the housing market. However, the current environment of deteriorating conditions, negative sentiment and an election, is dampening any signs of a spring recovery” said Mr. Dow.
Dunedin’s residential property values decreased by 8.5% over the past year (calculated over the three months ending September 2008 in comparison to the same period last year), down further from the 7.8% decline reported last month. The average sale price in Dunedin eased slightly to $271,971.
The rate of the decline in property value is greatest in the Southern City and the Peninsula, where values have decreased 13.2% and 11.2% respectively year on year. In contrast, the Taieri and Central/Northern City decreased by 7.9% and 6.2% respectively over the same period.
“Consistent with what we reported last month, there has been some levelling off in the rate of decline in the market. We are not confident that this trend will continue in the short to medium term, as the recent tightening of the lending policies of the major banks will begin to impact on the market. The requirement to have a significant deposit will take many first home buyers and investors out of the market, and this will impact adversely on demand, putting further downward pressure on prices” said Mr Paterson of QV Valuations.
“Agents are reporting an increased number of sales for September. This may be a result of vendors realising that they have to meet the expectations of the market if they want to sell, rather than being an indication that the market is picking up” Mr Paterson said.
“The reality of the current situation is that there are a number of factors within the local, national and international markets that are impacting on investment decisions. These factors will continue to impact on property prices for some time yet. We can expect further price reductions as the supply of houses for sale increases and demand decreases in the months ahead. In the long term investing in property has always been considered a good option, and that will continue to be the case in the future” said Mr Paterson.