Monthly Property Insights

After a small upturn in property values over the final few months of 2023 and into the early part of 2024, housing market confidence petered out again for most of last year, as first, high mortgage rates weighed on activity, and then second, the subdued labour market took over. But with mortgage rates now much lower and possibly set to even drop a bit further yet, the building blocks are falling into place for property values to start turning around in the coming months.

For a start, the CoreLogic Home Value Index showed that national median values only dropped by a minor 0.1% in January, the fifth month in a row where the movement had been minimal – hinting that a trough for values has arrived or at least is very close. Hamilton actually increased by 0.5% in January, with Auckland, Tauranga, Christchurch, and Dunedin all hovering between a +/-0.1% change i.e. essentially flat. The outlier for now amongst the main centres remains Wellington (-0.6% in January), with public sector cutbacks weighing on economic confidence and the housing market.

Of course, it shouldn’t come as any major surprise that property values are starting to flatten out and even rise again in some areas. After all, sales volumes have been rising for around 18 months now (admittedly from a low base) and historically an increase in activity tends to lead to stronger price trends after a period of time. Tentative evidence that the economy is starting to slowly grow again and that the worst for the labour market might already be behind us are also encouraging signs.

That said, there are several reasons for caution about the property market’s performance over the next year too. For a start, most affordability measures remain stretched – i.e. worse than average – meaning that although housing is cheaper than it was in 2021, it’s not ‘cheap’ in absolute terms. In addition, there’s still an abundance of listings on the market, which means finance-approved buyers have the upper hand when it comes to price negotiations.

Meanwhile, the debt to income ratio restrictions are an added factor that the market hasn’t had to contend with before. It’s true that the DTIs aren’t binding right now, because the banks’ serviceability test rates are still acting to limit maximum loan sizes. But the DTIs do at least seem likely to become a much more significant part of the general lending discussion fairly soon.

Taking all of this together, our broad expectation is that sales volumes will rise from around 80,000 last year to 90,000 in 2025, with national average values increasing by around 5% – with regional variability around each of these figures. Wellington, for example, could be an area that underperforms this year in terms of house price growth.

In other words, the signs of a turning point for the market seem to be getting a little clearer, but any upturn that comes through this year could still be fairly subdued by past standards. Those hoping for chunky capital gains might find that a bit disappointing. But there’s always two sides to the coin in the housing market and aspiring first home buyers as well as would-be new property investors will no doubt be hoping that the window of opportunity to buy at ‘discounted’ prices (nationally we’re still around 18% lower than the post-COVID peak) and falling mortgage rates lasts for a while yet.

There’s also a decent chance that existing owner-occupiers start to move around again a bit more this year too. They’ve had a quiet few years as confidence has languished and it’s been difficult to achieve a fast sale for their existing home before securing the next property. There’s every chance, however, that this starts to turn around in 2025.