House prices across New Zealand have continued to decline modestly over the past quarter, with weakening conditions broadly affecting regional markets, according to recent data from property research firm Cotality. The company’s latest Home Value Index indicates the national median house price fell 0.2% to $806,512 in June, marking a 0.8% decrease over the last three months. Compared with June 2022, the median price is down 0.9% from $815,389, and remains 17.5% below the early 2022 peak of $977,387.

Despite falling property values, residential mortgage debt has increased. Reserve Bank figures show total outstanding mortgage debt rose to approximately $399.9 billion in May, up from $377.8 billion a year earlier. Cotality’s chief property economist, Kelvin Davidson, noted that the increase in debt alongside falling prices implies a reduction in homeowner equity on paper. However, with New Zealand’s total housing stock valued at $1.67 trillion, and outstanding mortgage debt under $400 billion, the aggregate loan-to-value ratio (LVR) remains low.

Davidson cautioned that while some households may have experienced declines in equity, particularly in areas where prices have fallen, the overall economic impact is not severe. “The debt increase is not a big shift, so a bit of equity has been ‘lost’, but for the economy as a whole it is not significant, and nowhere near a disaster scenario,” he said. He added that negative equity is unlikely to trigger mortgage calls from banks unless payments are missed.

Regionally, Auckland and Wellington saw median house prices decrease by 0.5% and 0.4% to $1.04 million and $774,273 respectively in June. Tauranga’s prices edged down 0.2% to $929,649. Conversely, prices rose in Hamilton by 0.5% to $732,114, and Christchurch and Dunedin posted small gains of 0.2%, reaching $706,382 and $622,644 respectively.

In provincial areas, price movements varied. Rotorua’s median price remained flat, while Nelson, Gisborne, and Hastings experienced the largest falls at 1%, 0.6%, and 0.5% respectively. Queenstown also saw a small decline of 0.3%. Palmerston North was an outlier, with a 0.1% increase to a median price of $604,104.

Davidson attributed the subdued market activity to several factors, including elevated supply levels and diminished buyer demand amid ongoing economic uncertainties. He linked persistent softness to the geopolitical situation in the Middle East since March, which has influenced economic sentiment, inflation, and mortgage rates. While a recent peace deal has bolstered the economic outlook, its effects had yet to fully reflect in June’s housing data.

Lower mortgage rates in recent weeks could support buyer confidence, although the Reserve Bank’s future policy decisions will be critical in shaping market trends. Davidson emphasized that current conditions remain favorable to buyers, given the ample listings and cautious investor sentiment. With housing affordability having improved markedly over the past four to five years, he forecast a continuation of steady, subdued price trends rather than rapid movements.

First home buyers continue to navigate the market relatively well, but investors appear to be adopting a more cautious stance ahead of the upcoming election and potential changes to tax regulations.