Housing Market – Dunedin’s loss of momentum could be longer lasting

Source: CoreLogic

By Kelvin Davidson, Senior Property Economist

After a large boom in the past 4-5 years, Dunedin’s property market has lost momentum since April, with property values really only treading water. Time on the market has lengthened lately and the increased presence for investors may be leading to some harder bargains being driven when it comes to buyer offers. It seems unlikely that Dunedin values are about to fall sharply, but the reduction in affordability over the past five years may mean that future growth is held back.

Dunedin’s property market has been on a long upswing – average values have risen by 81% in the past five years (a rise of almost $245,000) – but it’s noticeable that there’s been a loss of momentum since COVID hit. Indeed, as the first chart shows, having broken through $550,000 in April, Dunedin’s average value has basically stood still for the past five months. Similarly, although sales volumes have rebounded from the COVID-induced lull in April, the rise has been smaller than other main centres.

What’s going on and what might the future hold? First, it shouldn’t be a major surprise that Dunedin would see a slowdown at some stage. After all, the large rises in property values since 2015 have seen a decline in housing affordability, especially on the value to income ratio, but also when assessed by mortgage payments as a percentage of average household income (see the second chart). Even despite the falls in interest rates in recent years, mortgage payments currently absorb 32% of average income in Dunedin, up from 27% five years ago. The key point is that reduced housing affordability tends to act as a long term restraint on the property market.