The CoreLogic House Price Index edged down 0.2 per cent in May, after a minor drop of 0.1 per cent in April. It’s too early to say if this is the start of another housing market downturn, but what is clear is that the upwards momentum has certainly petered out – consistent with still-stretched affordability, high mortgage rates, and plenty of available listings.

That high stock of listings is giving buyers the pricing power, with trends showing up most obviously in Auckland, where average values have dropped by around 1.5 per cent over the past two months.

Chart 1: % change in average property values, three months to May

Rental prices

Turning to rents, growth on the Stats NZ flow/new tenancy measure was 3.8 per cent in the year to May, the first time growth has been below four per cent since June last year, and also now getting back much closer to its long-term average of 3.3 per cent. In other words, rental growth now seems to have passed its peak, which is consistent with the slowdown we’re also now seeing for net migration inflows to NZ (albeit from a high base).

The fact that rents are already at record highs in relation to gross average household incomes might be a continued restraint for growth in the coming months.

Chart 2: % change in NZ rents in year to April/May

Over the past 18-24 months, gross rental yields have been trending slowly higher on the back of subdued house price growth but stronger gains in rents. From a floor of 2.6 per cent, gross yields now sit at 3.2 per cent nationally.

But in the past few months, house price and rental growth have petered out a little, so it seems likely yields could now stabilise in the near term. Auckland yields (2.6 per cent) remain the lowest of the main centres, with Christchurch and Dunedin both at 3.5 per cent.

Chart 3: National gross rental yields