Meremere v Normandale – suburbs knocking down property prices

Lodging

Ahead of the interest rate hike expected this week, CoreLogic and QV are analyzing sales data to find out which sunny suburbs are being hit hardest by the housing crisis – and which are bucking the trend

When Bruce and Janet Deihl put their three-bedroom Normandale property up for sale this year, they dared to dream of earning over a million dollars. That’s what sites like OneRoof and Homes.co.nz brilliantly promised them.

Instead, after weeks on the market, real estate agency Ray White sold the 805 square meter property in May for what appeared to be a measly $737,000. “We missed the mark with the market”, regrets Bruce Deihl. “What we got was, I think, a little disappointing because we had been led to believe it might be worth more than that. But that’s life.”

This week, the Reserve Bank is expected to raise the official exchange rate by 50 basis points (0.5 percentage points) to 2.5%. This increases the price that banks and other lenders pay for their money, forcing them to raise rates as well or absorb the rise in OCR into their margins.

The market is pricing in further rate hikes, which means that for communities like Normandale, house prices continue to fall. Last month’s sale price may have been a disappointment for the Deihls, but it was a big gain on the $207,500 they bought it for in 2003 — and at least they sold it.

There are other listed properties in Normandale that either remain stubbornly unsold or have been taken off the market by frustrated sellers as it becomes increasingly difficult to sell. The same goes for the length of the Upper and Lower Hutt Valley. QV managing director David Nagel predicts home values ​​in some areas will fall by 20%.

Why are there huge gaps between communities like Normandale, where home values ​​have fallen an unprecedented 10% this year, according to CoreLogic, and others like Reefton, Patea, Hahei and Mangawhai Heads , who still benefit from double-digit increases?

“Perhaps animal minds have also reversed quickly, as listings have grown and shifted pricing power to buyers.”
–Kelvin Davidson, CoreLogic

The biggest rise this year, in the six months since prices peaked just before Christmas, is in a small community in North Waikato. Meremere is best known for its disused power station, slip road and a few tired houses visible from National Highway 1 as motorists speed towards the hills of Bombay and Auckland.

But, according to CoreLogic, its home values ​​soared a jaw-dropping 30.2%.

Kelvin Davidson, chief property economist at CoreLogic, says it’s hard to determine trends at the granular level of suburbia, but it’s clear that parts of Auckland and Upper and Lower Hutt have been the hardest hit so far.

When Janet and Bruce Deihl put their three-bedroom Normandale property up for sale earlier this year, price estimates topped $1 million. But that was not to be the case. Photo: Ray White

“A clear factor could be that they’ve had strong ups, perhaps with ‘exuberance’ carrying prices above fundamentals,” he suggests. “Affordability has been stretched which has set the stage for bigger falls now. To be fair many other parts of New Zealand are also stretched so I expect the falls to continue to spread.

“I tend to agree with the Reserve Bank – maybe a 12-15% drop over a period of about 12 months. That was the GFC experience overall as well.”

The GFC showed that it could take several years for prices to peak. The pre-GFC peak of 2007 was not found until 2012. . So I expect a recovery that will take just as long this time.”

The highs and lows of home values ​​in 2022

Six-month change in home values ​​to June 2022 (CoreLogic)
Different six-month home value development to June 2022. Data source: CoreLogic

“The main cause for me is undoubtedly the credit environment – tighter official regulation by the Reserve Bank, tighter internal policies in the banks and higher mortgage rates. Perhaps the spirit animal reversed really quickly too, as listings increased and shifted the pricing power to buyers.”

At QV, Nagel made an internal presentation to the organization, questioning predictions that the downturn will be short-lived. He argues that these forecasts are just a response to the lowering of some mortgage rates by some banks this month.

“Returning expats have helped over the past two years, but now that many are leaving the country, the property market is vulnerable.”
– David Nagel, VQ

“Most expect the Reserve Bank to add another 50 points to the OCR this week,” Nagel said. “There will probably be a further increase of at least 100 points before we manage to get inflation under control. The medium-term trend is therefore for mortgage rates to rise. This will have a negative impact on mortgage prices. immovable.”

Nagel warns of the impact of an outflow of young workers, which would also drain demand from the rental market.

“What will be equally worrying is the much-talked-about ‘brain drain’ to Australia and beyond, as our young people seek higher wages and life experience not having had the regular travel opportunities since 2019,” he says. “While they are not normally landlords, these people are tenants. Landlords will therefore closely monitor the impacts of this likely exodus on rents and vacant units, particularly with rising mortgage-related costs of ownership. and increased interest deductibility.”

Six-month house price change from December 2021 peak ($)

To some extent this will be countered by incoming foreign workers – but this does not yet balance out the exodus.

“With borders barely open to migrants, we are currently struggling to break even in net migration gains,” says Nagel. “This is a significant lever for home values, with much of the previous cycle driven by very high migration, of which the net gain of 70-80,000 people need a place to live. The returning expats has helped over the past two years, but now many are leaving the country, the property market is vulnerable.”

Nagel agrees that the total decline will vary from community to community, depending on past increases in their prices and other local economic factors. “We are likely to see corrections of up to 20% in extreme cases, but more likely 10-12% for the majority of New Zealand.”

“Considering that we have seen gains of almost 30% per year in some places over the last 18-24 months, and that we are currently close to full employment, this will not cause havoc for the majority of owners, but could put pressure on those who were buying at the peak.”

Sun setting over some suburbs

No one watches the market more closely than the real estate agents who make a living from it. Alice Pearson works with The Professionals in the Hutt Valley; she markets properties in Normandale and says the agency has had its ups and downs.

She struggles to understand why values ​​have fallen so much in Normandale, one of the hillside suburbs overlooking the Hutt Valley. “Most people who move to the western hills, they stay in the western hills,” she says, “so what we’ve seen is probably a result of lower turnover. Some young people Families will settle in the area, but it’s more common that you’ll see people moving into these areas.”

She describes a three-bedroom house she got on the market, across Normandale from the Deihls’ property. “It’s been a real struggle to sell, for no reason. It’s a beautiful house and last year it probably would have sold in two weeks.”

She has houses that have sold, while neighboring houses are not getting any offers. “There’s no rhyme or reason – they’re around the corner from each other. Very different houses but such great locations.”

“Prices were so high last year so it was a hard landing. It wasn’t sustainable, it was going to happen eventually. But of course it’s tough if you were just one or two months of being able to achieve this high price.”

Prices as low as those paid for the Deihls’ property, she says, are “unusual.”

Bruce Deihl remains perplexed by the speed of the real estate decline, but a philosopher. Normandale is a suburb that seems to have all the basics.

He and his wife were talking at Benedict’s Cafe in nearby Maungaraki for cake and coffee. “We used to go for a walk most nights and it was really good for exercising,” he says. “Walking on the hills is really good. It gets your heart pumping.

“The house gets the morning sun really well. Our neighbors were nice. Yeah. It was a pretty good community. So I don’t know why it would be lower now than other areas.”

About Glenda Wait

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