18 June 2018
Some of the main centres have seen small falls in property values over the past few months, but there’s no reason to think that these drops will become more significant or sustained.
Since February, five of the six main centres have seen property values fall in at least two individual months. In Wellington, Hamilton and Tauranga, those falls have been consecutive in April and May. As the first chart shows, only Dunedin has sailed on unaffected so far in 2018 (with values up by 4.5% since December). Except for Dunedin, it seems clear that the high levels of prices around the country and tight serviceability criteria from the banks are slowing the market.
That said, it’s always worth keeping an eye on history as a guide to what might happen if an unexpected shock did actually come along. As the second chart shows, we’ve had three main downturns since 1990, which broadly occurred 1990-92, 1998-2000, and 2008-10. These are shown in a different way on the third chart, with the cyclical peak for property values set at 100, then subsequent movements traced out.
At the worst point in the early 1990s after about a 1½ years, values had fallen by almost 4%. It then took another year or so for them to get back to the previous peak. The Global Financial Crisis (GFC) related episode in the late 2000s was deeper, with values falling by 10% in around a year, with the previous peak not regained for about another three years. Both of those downturns in property values coincided with falling GDP, i.e. a recession (illustrated in the fourth chart). By contrast, the falls in residential property values in the late 1990s did not coincide with a recession – although it was a close call – and the downturn was shallower and shorter than the early 1990s or late 2000s.