Property market insights 2023

Autumn 2023 Edition

Headlines often paint a picture of doom and gloom – but look under the surface, and a more complex picture emerges. So how to make sense of the data? Property value experts Valocity share their insights into the New Zealand market and examine the key drivers affecting current values – and why headlines only tell half the story. 

Current state of the market

The significant rise in median property values over the past decade has been well documented – as is the decline we’re seeing now. Sales volumes are low, enquiry rates are down, and new listings are low (and getting lower). In fact, sales volumes are now at levels below where they were in the lead-up to COVID-19, with our main urban centres seeing the sharpest decline. Rising interest rates, global volatility caused by the pandemic and the Russia-Ukraine conflict, and government policy are just some of the factors which have contributed to this. 

Generally, investors are the group most impacted by policy that may not come to fruition – so the fact that 2023 is an election year is significant. It’s one reason why we’re not seeing a surge in listings driven by investors. The ‘great re-entering’ into the market which some commentators predicted hasn’t come to be. 

The bigger picture

While the current climate is characterised by low sales and activity, it's important not to be distracted by headlines. Look under the surface and consider a wide range of different inputs – not just what’s being bought and sold.  

Sales volumes, number of listings, enquiry rates, type and quantity of housing stock, and historical and recent trends are all valuable metrics that can provide a more complete picture of what’s going on. Context is key to understanding why certain trends might be emerging and what could be misleading or skewing the data. 

Here’s an example of three key metrics which can help paint a more accurate picture of what’s really going on: 

Sales composition

Consider what’s actually selling right now. During the peak of the post-COVID boom, we saw a creep towards higher-priced properties, driven primarily by ‘mum and dad’ investors choosing to upsize, investors expanding their portfolios, and first home buyers who were happy to compete. Prices are now coming back down, which is a direct result of who’s remained active in market: first home buyers looking for more affordable entry points.

Property type

This goes hand in hand with sales composition. Right now, we’re seeing growth in units and townhouses being sold. These types of dwellings are attractive to first home buyers looking to enter markets across the country, because they have one very important thing in common – they’re typically at the lower or entry price bracket. So not only are we seeing lower sales volumes, but a shift towards townhouse or unit stock at lower price brackets.

Mortgage registrations

Mortgage registrations give valuable insight into who’s purchasing property right now. While mortgage registrations are down across the board, it’s important to note that a significant percentage of these are first home buyers, who are targeting lower price brackets.

Why are these metrics important? If you’re looking at a media headline that shouts about low sales volume, it’s important to take note of what’s actually being bought and sold right now. It’s not necessarily that every property has had a step down in value, but rather that the sales composition has changed. 

What to watch out for

We know the doom and gloom headlines don’t tell the full story. But how do we know if the property market is heading for trouble? There are some typical metrics that might sound the alarm, such as the percentage of properties selling in mortgagee sales, or at a loss. Crucially, there’s no particular group – whether it be borrower type, geographic location, or property type – that’s seeing a spike in these metrics. That’s a good sign. And in many cases, the money lost is dwarfed by equity growth. 

While many that bought in the peak of the boom period may be in negative equity right now, it’s important to remember that if owners can hang on, they can ride it out. 

Finally, we’re not seeing the exodus of any particular group from the market –and we’re certainly not seeing the widespread exit of investors. Although we saw a spike in properties being sold by investors after the first COVID-19 lockdown, this has normalised back down to historic levels. 

Where to from here?

We can look at what we know now and use that to make some predictions about how the year will unfold. 

The good news: there are still strong value drivers in place. Unemployment is still low, the softening of property values is lowering the barrier to entry for first home buyers, and New Zealand is back into a net migration gain. These are all historic drivers that support value levels. There’s also been an overall growth in building consents for new builds, and a rapid growth in multi-unit home consents, which includes townhouse or unit stock – now the largest consented dwelling type.  

But we also have headwinds. Strong inflation – and the accompanying OCR increases – typically contribute to a cooling of values. The majority of fixed rates in New Zealand are to be re-fixed in the coming twelve months, which may cause uncertainty in market. Potential buyers may take a cautious ‘wait and see’ approach, especially in the lead-up to the election. 

Although some parts of the market are beginning to ramp back up again, sales volumes are expected to continue to soften this year. Nationwide, values are likely to end up somewhere around 15% below peak levels (this number will be higher for some urban centres, such as Auckland and Wellington). At this stage, it’s too early to see the impact on property values in the Hawkes Bay and Gisborne as an effect of Cyclone Gabrielle.  

Key takeaway

The most important message is this: don’t let headlines drive your decision-making. Let the data be your guide. Make sure you understand what is actually selling and not selling in your suburb, town, region, and nationwide. Knowing what metrics to track and what those facts show is important for you to plan what your next step might be.  

To learn more about Valocity, visit their website