Doubts house prices are rising were wiped out with the third consecutive increase in December.

The CoreLogic House Price Index shows after October’s 0.4 per cent increase and the 0.7 per cent gain in November, December saw a rise in property values of one per cent.

This is the strongest monthly gain since January 2022 (2.1 per cent). The average value now stands at $924,489, up 2.1 per cent over the past three months since September's cyclical trough.

However, national property values remain 3.3 per cent below this time last year, and 11.4 per cent lower than the peak from two years ago.

The gains were widespread across the main centres in December, with Tauranga, Auckland and Christchurch all registering increases of more than 1 per cent.

CoreLogic chief property economist Kelvin Davidson says while the continued gains in property values in December weren’t a surprise, he’s also anticipating a degree of continued “patchiness” this year, both in terms of the changes from month-to-month as well as variability across the regional markets.

“A further rise in property values in December seemed almost inevitable given housing market sentiment has risen in recent months. This is off the back of several factors including the change of government, a peak (and even some falls) in mortgage rates, continued growth in employment, and soaring net migration.”

However, he doubts too many people are rushing out and buying property just because the recent downturn has suddenly made it look cheap. In fact, affordability pressures are still a major issue. “Even though mortgage rates have dropped a bit for some durations, the most popular shorter fixed terms, such as one year, have been flatter at a high level. This is continuing to strain aspiring homeowners’ ability to buy property.”

Davidson says caps on debt-to-income ratios remain on the cards within the next year. Sharper or more widespread falls in mortgage rates than the Reserve Bank will be comfortable with could perhaps bring forward the timing for those DTI restrictions, provided the banking processes are in place.

He says although the general upward trend for property prices is likely to continue this year, it may not be smooth from month-to-month, with some results stronger, but others much weaker. Underlying that patchy national picture will be variability at regional level, with the main centres potentially seeing the biggest boost from inwards migration, but provincial markets less supported.

Auckland values

Within Auckland, Manukau recorded the strongest rise in property values in December, up by 2.1 per cent, although modest falls prior to that meant the quarterly increase was “only” 1.6 per cent. North Shore, Waitakere and Auckland City were also fairly robust, while Rodney and Papakura were relatively flat. Franklin recorded a fall of 0.9 per cent in December, and 0.8 per cent over the past three months.

“Auckland’s sub-markets are all starting to look more robust, apart from a bit of lingering weakness in Franklin. This serves as a reminder that the upturn in 2024 might not all be one-way traffic, with some inconsistency from month-to-month and across regions,” Davidson said.

“However, with housing sentiment shifting to the upside and mortgage rates at least not going any higher, it seems likely that Franklin could return to the pack shortly too.”

Wellington growth

Wellington’s sub-markets generally saw further growth in December, especially in Lower Hutt, with a gain of 2.6 per cent. That market is now 4.5 per cent higher since September, trumped only by Porirua at 4.9 per cent quarterly growth, taking its annual change to 1.1 per cent.

“Following large declines through the downturn, the wider Wellington market is now turning around fairly quickly. However, all parts of Wellington remain quite a bit lower than their previous peaks,” Davidson says.

“That said, Wellington city itself remains a little lacklustre with a modest fall in values in December. Of course, with an average value greater than $1 million, affordability will still be a key issue for some buyers.”

Regional House Price Index results

The expectation that this year’s property market upturn could be variable is reinforced by the provincial value results for December. For example, Gisborne showed a 2.5 per cent monthly fall despite a 0.4 per cent rise since September, with Napier also down in December. By contrast, Whanganui, Rotorua and Queenstown all rose by two per cent or more.

Queenstown still stands out as an area that has generally defied the downturn, with values now almost 6 per cent higher than a year ago, sitting at a new peak of about $1.77 million.

“Clearly, Queenstown is still a magnet for wealthy buyers, whether local or from out of town. And strong demand to live and work in the area as tourism snaps back is seemingly contributing to price pressures as well,” Davidson says.

The outlook

December brought last year to a close on a strong note for property values, but Davidson suspects the likely recovery over the year ahead could undershoot some expectations and prove to be a little underwhelming by past upswings.

“A lot hinges on how mortgage rates move, but also how any falls are counteracted by tighter lending restrictions from the Reserve Bank, such as DTIs,” he says.

“It’s always worth being mindful of the role of psychology in the housing market, and the scope for sentiment to overtake the fundamentals. Certainly, investors’ moods seem to have perked up lately off the back of the change of government. But with significant cashflow top-ups out of other income still required on a typical investment property purchase, that positive mood may not translate into much extra buying.”

Davidson anticipates sales activity will rise by about 10 per cent this year, which is reasonable growth, but from a low base. Meanwhile, national property values could rise by about 5 per cent, averaging out a wider range of regional results.