The upside of the current property downturn
A veteran Nelson valuer is urging property owners to “keep calm and carry on” as local home values drop 8.8% in six months.
Local Quotable Value (QV) Property Consultant Steve Russ has been working in the property industry for more than 35 years and counting, including a decade as head of his own property development business. In that time, he’s witnessed numerous property downturns — most notably after the 1987 and 1999 share market crashes, and in the aftermath of the 2008 Global Financial Crisis (GFC).
“The current correction is actually very restrained considering the very large increase in property prices we saw nationwide during 2020 and 2021. That upswing was largely driven by what I would call an unreasonable amount of exuberance following the availability of cheap money, as a result of the massive reduction in the Official Cash Rate,” Mr Russ said.
The average home value shot up by an average of 45.5% nationally between the end of 2019 and the start of this year. Values have retreated by an average of 7.6% nationally since then, including a 5.5% drop in the three months to the end of August — with the latest figures even recording Nelson’s first annual home value reduction in more than a decade.
“It is important to remember that all markets go through cycles, and the property market is not immune to this. There are no doubt investors who are not enjoying the current downturn in share prices, but I imagine most are not panicking and selling at a loss,” Mr Russ said.
“The property downturn probably has some way to go yet, but I don’t see this necessarily as a bad thing, given that NZ has some of the least affordable housing in the world. The big positive I see is that first-home buyers who have been left behind can perhaps see some hope of buying a property in the future, instead of contemplating a move across the ditch.
“While it’s certainly true that many people who purchased near the peak of the market will be feeling some discomfort right now – and I sympathise with them – fortunately banks have good stress-testing rules that borrowers must meet in order to get a loan, so the vast majority should manage okay through a period of higher rates, as long as unemployment stays low.”
The seasonally adjusted unemployment rate was 3.3% in the June 2022 quarter, up from 3.2% percent in the March quarter, according to Statistics New Zealand. The underutilisation rate was 9.2%, down from 9.3% – this figure reflects the people who do not have a job but want one, are part-time and wanting to increase their hours, and are looking to start work within the next month.
“My best advice for recent home buyers who are worried about going into negative equity is to keep calm and carry on. As long as you don’t need to sell your house in a hurry, you should be okay in the long term. To the people who don’t own their home, and would like to someday, I say don’t give up hope. The downturn likely has some way to go yet,” Mr Russ added.