Buyers cautious as activity remains subdued

09 September, 2010

Comparing house value changes between urban, provincial and rural areas

In our monthly property value statistics releases we calculate the value change for each of the 74 territorial authorities around the country. There are often differences between each of the cities, but even bigger differences between cities and rural areas. So let’s take a step back and compare the change in house values over the last few years in the main urban areas, the provincial towns, and the rural areas.

The main urban areas include the major cities from North Shore to Dunedin, including Hamilton, Tauranga, the cities in the Wellington region and Christchurch.

The provincial areas include the other cities and major towns across the country such as Whangarei, Rotorua, Gisborne, Napier, New Plymouth, Palmerston North, Nelson and Invercargill.

The rural areas are those largely without major cities or towns, and include areas such as Kaipara, Hauraki, South Waikato, Rangitikei, Carterton, and the Grey, Mackenzie and Clutha districts.

The QV residential price index was calculated for each of these area groups, so we can track the value change over time, from the boom times of 2006 through the roller coaster ride that has been the New Zealand housing market since.

Last time we looked at this back in November 2009 we saw how the main centres had bounced back strongly from the low of early 2009 whereas the other areas hadn’t. Since then the market has begun to drop back again.

The chart below shows the change in house values in New Zealand and each of the three areas relative to the peak of the market.

We know that all areas grew strongly up to the peak, with rural areas showing the greatest increase in property values in the boom years.

As house values dropped during 2008 and into early 2009 it was the provincial areas that dropped the most, by about 11%. The main urban areas dropped some 10%, and rural areas about 9%. House values in rural areas also peaked later than the other areas, reaching their maximum in April 2008, and also reached their subsequent low point later.

The recovery in values in the second half of 2009 and into early 2010 can be clearly seen in the main urban areas, which given their population also drove up the New Zealand values. After dropping just over 10% from peak, values in the urban areas recovered more than 6% of this loss, so that in April this year values were only 3.8% below the previous market peak.

There was also a recovery in values in the provincial areas from the low of early 2009, but values only recovered 3.5% by early 2010 to sit 7.5% below the previous market peak.

In the rural areas there was only a 1.2% recovery in values from the low, so by early this year the closest they came to the previous market peak was about 8% below.

After the recovery of values throughout 2009 there was quite a marked turnaround in March 2010. The shortage of quality properties on the market during 2009 increased competition among buyers and helped push up prices, particularly in the main urban areas. This began to ease in early 2010 as more properties were put on the market. In early 2010 the Government also made announcements about their intentions to review the tax system in the May budget. This included an increase in GST, decreases in Income Tax, and tightening of the tax rules around investment property. The uncertainty around the exact nature of these changes meant that activity in the market began to slow in the lead-up to the May Budget.

Although the May Budget was kinder to property investment than some had predicted, the market continued to slow throughout winter. The number of house sales dropped close to the low levels experienced during the financial crisis of 2008. The wait-and-see sentiment amongst both buyers and sellers has continued since early this year, and many people are focussing on debt reduction rather than spending.

The lack of urgency amongst buyers, the relatively high stock of unsold property, and the state of other key drivers of the property such as net migration, interest rates and job security has meant that values have begun to drop in all areas over the last few months. In the main urban areas values re 1.4% down since their mini-high in April 2010, in provincial areas values are down 1.3% since March, and in rural areas values are down 1.5% since April.

Unless there are fundamental changes in the economic environment then values are expected to slide back a little further before stabilising for the next couple of years. However property values are very difficult to predict given that one of the strongest drivers is consumer confidence, and we’ve seen how quickly that has changed recently!

Source: Jonno Ingerson - Research Director, PropertyIQ