Breaking the Bubble: New Zealand’s Housing Market Reawakening

Recent data from OneRoof and its data partner Valocity reveal that house prices in every suburb across New Zealand have experienced an increase over the past five years. Notably, 10 suburbs have witnessed a remarkable doubling of property prices, with the most substantial surges occurring in the country’s lower-priced regions. These trends primarily reflect the heightened activity of first-home buyers during the post-Covid economic fluctuations.

OneRoof and Valocity conducted an analysis of the five-year change in the average property value for each of the 790 suburbs, considering settlements with 20 or more transactions in the last year. Results indicate that the average property value in each suburb has risen compared to five years ago, with Auckland showing the smallest increases. Conversely, Gisborne, Southland, and West Coast experienced the most significant percentage rises.

Topping the list is Reefton in Buller, where the average property value soared by 136% over the last five years to reach $383,000. This means that homebuyers in Reefton are now paying an average of $221,000 more than in 2019.

The study also highlighted suburbs with the most substantial dollar changes over the five-year period, revealing that property values in four areas increased by nearly $1 million. Three of these suburbs are in Queenstown-Lakes, while the fourth is situated in the affluent beach town of Omaha on Auckland’s northern fringe.

However, the post-Covid market downturn has impacted the value gains of many wealthy suburbs, causing values in places like Herne Bay and Westmere to decrease by $400,000 to $500,000 from their post-Covid peaks.

Reefton, a historic gold-mining town with a population of around 1200, has become an attractive place to live. Residents praise its small-town charm, lack of city hustle and bustle, and the availability of amenities like shops and supermarkets. Despite the doubling of house prices, Reefton is still considered affordable, offering a relaxed lifestyle with scenic walking and biking tracks.

In a broader context, New Zealand has been grappling with a housing bubble, leading to high house price-to-income ratios. However, recent trends indicate a downward trajectory in this ratio since the first quarter of 2022. In 2023, around 28% of residential properties were sold for over a million New Zealand dollars, contributing to the challenges of homeownership for many in the country.

Addressing housing quality concerns, new builds adhere to stricter regulations, but existing homes face criticism for lacking efficient insulation. To improve standards, subsidies have been introduced by community trusts, local health boards, and the government, specifically targeting insulation and energy-efficient heating installations.

The real estate market in New Zealand is currently witnessing increased activity, with houses selling faster. In December, the median time to sell a house reached a low of 36 days, the shortest since March 2022. This comes as signs suggest that interest rates may have peaked, encouraging more buyers to enter the market. House prices, after a prolonged slump, rose 0.5% in December compared to the previous year, marking the first annual gain since June 2022.

The recovery is attributed to expectations that the Reserve Bank of New Zealand (RBNZ) may have finished raising the Official Cash Rate (OCR), combined with warmer spring weather traditionally reviving buyer interest. Additionally, the success of center-right parties in the October election, campaigning to reinstate tax breaks for landlords, has fueled demand.

Despite RBNZ projections indicating no OCR cuts until 2025, investors anticipate policy loosening sooner due to a cooling economy. Tentative signs also suggest that mortgage rates are near their peak, with two-year fixed-term products now priced at 6.89%, compared to over 7% in November.

With growing market confidence and activity, particularly following the release of government plans and stabilized interest rates, both buyers and sellers in New Zealand’s real estate market are increasingly inclined to take action. House sales in December saw a 14% increase from the previous year, while the available stock of houses at the end of the month decreased by about 11% from November as listings slowed. Enquiries from potential sellers are strong, indicating expectations of increased listings across the country in the coming months.