National revaluation manager Tim Gibson said Dunedin’s residential property market started the year with "a whimper rather than a bang".
The average home value declined modestly by 0.4% in January, which helped to drag down the city’s rolling three-month average value growth from the 5.3% reported last month to 2.9% this month.
Only Dunedin North (0.3%) and Taieri (0.4%) recorded modest value gains during the month of January, he said.
"The market has slowed as higher interest rates and tougher lending conditions began to bite.
"There has also been a noticeable increase in residential listings, which has reduced some price pressure.
"But it’s still too early to say whether this is part of a long-term trend. We’ll have a clearer picture in February and March, as they tend to be busier months."
Queenstown home values also declined 1.3% in January, following two months of modest home value growth on average.
QV property consultant Greg Simpson said banks had now tightened up on assessment of incomes and expenses, with the commencement of the Credit Contracts and Consumer Finance Act.
"Since it came into effect, there has been increased difficulty in trying to secure mortgages which is making borrowers consider the second-tier option for non-bank lending.
"Overall there has been strong restraint applied to the housing market from tightening these credit conditions."
It was a similar situation in Invercargill where home value growth eased into the new year at a rate of 4.2% over the past three months — down from the 5.7% reported last month and well below the national average of 6.1%.
QV registered valuer Andrew Ronald said there was generally strong demand throughout the city, but many buyers were experiencing difficulties in obtaining suitable finance.
"This, together with increasing interest rates and uncertainty surrounding Covid-19, is having a dampening effect on the market.
"Supply has also increased over recent months, creating less competition amongst buyers," he said.
QV general manager David Nagel said New Zealand had experienced "spectacular" value growth throughout 2021 — increases unlikely to be seen again for a generation.
He said all 16 of the major urban areas monitored by QV had shown a reduction in the rate of three-monthly value growth from the December data.
"This provides a pretty strong signal that value levels are peaking, as more vendors list their homes and the number of buyers reduce, especially first-home buyers and investors seeking bank credit."
Mr Nagel said all eyes would now be on the overseas response to the scheduled border reopening.
"If the floodgates were to open again to new migrants and returning Kiwis at the levels last seen in 2019, then we could see some strength return to the property market as demand for housing increases.
"But more likely, we’ll see a gradual decline in the rate of growth, as interest rates rise and tax deductibility rules take effect for investors."
