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a flaming house climbing and then falling
Image: Tina Tiller

BusinessApril 19, 2023

Revealed: The four suburbs where house prices have slumped to pre-Covid levels

a flaming house climbing and then falling
Image: Tina Tiller

These inner-city neighbourhoods have seen their startling pandemic-era rises wiped out – and five more suburbs are hot on their heels.

Like the world’s most socially harmful rollercoaster, the New Zealand housing market has left its 2021 peak behind and in some suburbs is – according to new data released to The Spinoff – descending with dizzying speed. 

There are now four neighbourhoods where the average house price is below its pre-pandemic level: Auckland’s Newmarket, and the Wellington suburbs of Oriental Bay, Pipitea and Wellington Central. According to data produced by real estate platform OneRoof and its partner Valocity, average prices in those areas are now $4,000-$55,000 lower than their February 2020 value. These falls are only in the order of a few percent: prices in Newmarket, for instance, have dropped from an average of $895,000 pre-pandemic to $866,000 today. But even that was hard to imagine when prices were rising 30% in 2021 alone. 

And other suburbs are hot on their heels. A fall of just a few percent more, and five further suburbs, again concentrated in the nation’s two largest cities, will join the reversing-Covid-gains club: Grafton and Manukau (Auckland), and Te Aro, Mt Cook and Mt Victoria (Wellington). 

 

OneRoof editor Owen Vaughan says the price falls have – unsurprisingly – been concentrated in areas “that rose quite sharply during the boom”. The nation’s capital, arguably the frothiest of all during the pandemic, has had correspondingly the biggest collapse. Whereas in suburbs like Oriental Bay, owners in the pandemic had been “cashing in – selling off their properties and making quite a bit of money off it”, they have since reverted to their usual habit of holding onto their houses for long spells.

Other suburbs have also experienced startling falls in value, albeit without completely wiping out their (even more startling) pandemic-era price rises. In Auckland’s Herne Bay, average prices have fallen $647,000 from their 2021 peak (to a mere $3.58 million); in Wellington’s Roseneath and Kelburn, the falls have been around $555,000 and $545,000, respectively. 

 

Of course the housing market as a whole has not returned to its pre-pandemic level. The biggest post-peak fall, by region, is Wellington’s 22.8%, but even that is a long way short of wiping off the 40% rise that occurred nationally during 2020 and 2021. Other regions, like Canterbury and Otago, have seen price falls (compared to their peak) of just 5% – “minuscule”, in Vaughan’s words. 

 

Prices in Christchurch in particular have kept defying gravity. In nine of its suburbs – Avondale, Linwood, Woolston, Wainoni, New Brighton, North New Brighton, Little River, Phillipston and Aranui – prices have risen by 50% since February 2020, and fallen back only a few percent from their pandemic-era peak. “It [Christchurch] is seen as an affordable sector where prices aren’t as insane as they have been in Auckland,” Vaughan says. “You can still get quite a lot of house for your money.” A wide range of house types are available for purchase, and many have been strengthened since the 2011 earthquake, raising their perceived value.

Generally, though, prices have fallen across the country. According to interest.co.nz, the typical house-price-to-income ratio is, at 7.4, more or less back where it was in April 2020. Good news? Only until one remembers that, even in early 2020, New Zealand had some of the world’s most expensive housing, relative to incomes. Internationally, a sensible price-to-income ratio, one in which homes are generally considered to be “affordable”, is more like three to one. 

What does all this mean? It suggests, first, that a modicum of sanity is being restored in some suburbs, though they also tend to be the pricier ones. And while this is good news for first-time buyers, interest-rate rises are also making it harder to service a mortgage than at any time in the last decade.

Those who bought at or near the peak, meanwhile, will have the unpleasant sensation of being underwater, in the jargon. But for those who can sit tight, this may not matter too much: one’s ability to pay the mortgage is based on one’s income, not the house’s value, and in the long run prices tend to rise. 

Vaughan says the current house price falls are very much a function of higher interest rates raising expected mortgage costs: “It’s not a case of [buyers saying], ‘I’m not paying that!’, it’s a case of, ‘I can’t pay that.’” What happens next is unclear. As the Reserve Bank’s rate hikes are predicted to plateau shortly, many commentators are picking the bottom of the market to arrive around mid-year or soon after. Slowing house construction and renewed immigration might also push prices up. 

If, conversely, the predictions of a deeper-than-expected recession evaluate and tens of thousands lose their jobs, one of the forces “stopping a free-fall” in house prices – the strong labour market – will have been removed, Vaughan says. For all that, he doesn’t foresee “a massive decline on the horizon”.

In all this, spare a thought for those who, for whatever reason, need to move now, and may have to crystallise substantial losses, having bought high and been forced to sell low. That burden, though, was inevitable the moment the government allowed – or encouraged – prices to soar out of control at the pandemic’s height.

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