Housing: Expensive homes rising in value more quickly than affordable homes

First-home buyers and investors looking for rentals are reaching the limits of what they can afford, new data suggests, showing houses at the affordable end aren't rising in price as quickly as the most expensive. 

Quotable Value on Friday released new data dividing the housing market in each of the major centres into quartiles - the most, second-most, third-most and least expensive. 

"While the mean average house price that we report in the monthly QV House Price Index is a useful gauge of what's happening in the residential property market, breaking the market down further into quarters... gives us greater insight into what's happening to prices at both ends of the market," QV said in a statement. 

Median prices skyrocketed in 2020, but the new data shows the growth has been uneven - the more valuable a home you own, the more likely you were to post spectacular capital gains.

"Though there is still plenty of competition between first-home buyers and investors, we seem to be getting to the stage now where many of them are reaching their affordability and credit limits," said QV general manager David Nagel.

In Auckland, property prices in the upper quartile rose 18 percent, while those in the lowest rose just 15 percent. They were neck-and-neck until August, after which homes costing more than $2 million grew in value twice as fast - in terms of a percentage - as those in the lowest quartile.

"We're seeing the limited supply of higher-end stock being subjected to greater price pressure, which is the reverse of what we saw previously," said Nagel. 

In the second half of last year Wellington's priciest homes went up in value 17 percent, and the cheapest just 13 percent. Tauranga and Hamilton also saw diverging price inflation in the latter half of 2020. 

Queenstown had the biggest gap - the upper-quartile homes up 10 percent, a "whopping" $228,476, while lower-quartile prices rose just 2.1 percent - netting owners a still-tidy $15,658. 

The major South Island centres bucked the trend, with Christchurch and Dunedin experiencing faster growth in the lowest-quartile - but in dollar terms, those with expensive homes still won out. A 12.1 percent boost in values for the upper quartile saw owners $96,973 better off, while a larger 16.9 boost for owners of the cheapest properties only netted them $61,207. 

"There appears to be a much greater amount of competition between first-home buyers and investors at the lower-end of the market in Dunedin than in other major centres, relative to the top end of the market," said Nagel.

But don't expect it to last.

"I expect that one day in the not-too-distant future we'll get to the point where potential purchasers reach their credit limits and some of that competition putting upward pressure on prices begins to dry up as a result."

New rules requiring investors to have larger deposits are due soon, and with most banks already having made the move and homes statistically almost the least affordable they've ever been, it's expected the red-hot housing market will cool later in 2021 - but few are picking a crash.