Property values in Wellington City spring to life as the winter lull for values comes to an abrupt end

According to the October CoreLogic QV House Price Index, property values in Wellington City grew by 3.9% over the last three months. This takes the annual rate of capital gain in Wellington City to 9.6% and illustrates a similar trend to the rebound seen last spring, when the annual rate was a slightly higher 10.0%, after recovering from another underwhelming winter for property values.

A shortage of total properties listed for sale remains a constant in the Capital, so properties that are listed for sale are still attracting competitive interest – which is, in turn, seeing an increase in values. Spring has also seen the normal seasonal lift in new listings being added to the market however with a consistently low number of days to sell the impact of new listings is reduced.

Strong population growth (much like the rest of the country) and a buoyant labour market, supported by the public sector (and associated high-paid jobs) is boosting demand. First home buyers aren’t as active as last summer, as many look slightly further afield for better value, but investors, accounting for 41% of sales in Q3, continue to find value in the City.

Meanwhile, property values continued to increase in Dunedin, with the rolling quarterly rate of growth strengthening to 2.8% (from 2.4% previously). Similar figures were also present in Hamilton (2.8% quarterly growth), however annual growth here remains below 6%, well short of the 10.5% experienced in Dunedin.

In Auckland, property values continue to hold reasonably steady – up 0.2% over the month but down 0.3% according to the quarterly measure. The sub-regions of Auckland are generally recording flat conditions as well, with six of the seven areas seeing quarterly growth range from -0.6% to +0.5%. Only Franklin sits outside this range, at 0.9% growth. Franklin remains the most affordable of the old ‘cities’, with an average value of $671k and is mostly represented by the town of Pukekohe, which makes up 42% of all properties in the area (and to a lesser degree Waiuku with a further 20%).

The QV House Price Index for October indicates the current growth cycle is not completely over yet. The banks continue to compete strongly for mortgages via their fixed interest rates and this is enabling buyers to continue participating in the property market. Borrowers are still subject to greater scrutiny of their income and expenses but once they satisfy the bank’s criteria their mortgage payments should be relatively manageable due to historically low mortgage interest rates.

We’re yet to see the same increases to mortgage rates that other countries are seeing, including Australia. And given our proximity to Australia, there has been some speculation that the downturn being witnessed across the ditch will be replicated here.

For now, this looks unlikely – with 80% of New Zealand borrowers favouring fixed interest rates. This is almost in complete contrast to Australia where the majority of their lending is on floating rates. This greater exposure to mortgage rate movements in Australia can lead to borrowers’ payments increasing particularly for investors who have favoured interest-only loans, many of which are now approaching their 3-5 year term expiry and transitioning to principal and interest payments.

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