The average value increased 8.8% over the past three month period to the end of May, down slightly from the 8.9% quarterly growth value at the end of April. The national average value now sits at $931.928.

QV says even though the drop is small it is significant as it’s a rolling three month average, which includes some big increases during earlier months.

Tararua had the most value growth in the latest quarter, up 23.3% followed by Carterton up 18.1% and Waitomo up 17.9%.

Of the 16 cities where value growth is measured by QV, growth in May was up compared to April in Whangārei, Auckland, Tauranga and Hamilton; down in Rotorua, New Plymouth, Napier, Hastings, Palmerston North, Wellington, Marlborough, Christchurch,

Queenstown-Lakes, Dunedin and Invercargill; and unchanged in Nelson.

QV expects value growth to decline further as the scrapping of tax deductibility, requirement for 40% deposits and tightening credit starts to bite.

Pressure on prices

Even if house prices fell 20% as some people would like, it would only take them back to where they were a year ago.

BNZ economists believe the country is entering a multi-year period when the marginal supply exceeds the marginal demand putting downward pressure on house prices.

They are not predicting a price slump, but would not rule one out either.

“A 20% nosedive for buyers who have just bought would be problematic, but for prospective new entrants a boon and for everyone else, it shouldn't really matter.”

The economists also say weaker price growth, weaker growth in demand and the supply boom will lead to a softening in residential construction over the next two years.

However, Westpac economists say the strength in homebuilding is likely to continue over the next year, given the size of the existing pipeline of work.

For the March quarter, residential construction activity lifted by 3.7%.

Homebuilding activity has been resilient to the Covid-related headwinds that buffeted the economy over the past year, supported by low interest rates and related strong gains in house prices.

Building consents rose another 4.8% in April, taking the total over the past year to nearly 43,000, another all-time high.

More than 18,000 of those consents were in Auckland alone, reflecting the easing in building restrictions resulting from the city’s Unitary Plan in 2016.

“On a per capita basis, this is now surpassing the 2004 building boom and there is no sign of this coming to an end anytime soon,” Westpac economists added.

The strong pace of homebuilding, combined with the sharp drop-off in population growth as a result of the border closure, means the country is now making significant progress in addressing the housing shortage.

It is estimated in Auckland supply could meet demand in the next three years, with the rest of the country taking longer.

BNZ economists say the longer inflation remains at current elevated levels the greater the chance that the housing market will be forced into a major correction.

A price correction is not being forecast by the BNZ. Head of research Stephen Topliss says as it turns out, the Reserve Bank’s latest house price forecasts are similar to the bank’s own.

“Our view is a tad more inflationary but only at the margin. We are forecasting a 17.0% increase in house prices in the year ended December, but the vast majority of this has already happened.

“Only modest growth is expected from here on in with annual inflation dropping to about 2.0% per annum over 2022 and 2023.”

Looming troubles

Homeowners who do not live in their house for a significant period may be caught by new tax rules aimed at property investors.

Chartered Accountants Australia and New Zealand (CAANZ) says homeowners may end up facing a large tax bill under the extension of the bright-line rule.

If a house is sold within that period the net gains will be added to the person’s income and taxed at the top rate.

It is a trap for homeowners, who CAANZ says should not assume the main home exclusion will automatically apply to them for the full 10 years – particularly if they are outside the safe harbour provision allowing them to be away for 12 months continuously.

People who could be caught out are those who are seconded by an employer to work away from home for more than a year or those who take more than a year to build a new home and then sell within 10 years.

Falling outside the main home safe harbour will lead to paperwork and a potential tax bill.

Those outside the safe harbour provision are urged to keep records of how long they are away and any improvements they make to the property while away which could be claimed against a property’s sale proceeds.