New Zealand house prices to fall 9.0% this year, another 2% in 2023: Reuters poll | Investing news


BENGALURU (Reuters) – New Zealand’s house prices are expected to fall 9.0% this year as aggressive rate hikes amid a deepening livelihood crisis take some heat out of the blazing housing market and keep potential buyers on the sidelines, according to a Reuters poll.

Property prices have nearly doubled in the past seven years as investors have benefited from near-zero interest rates and access to cheap credit. This has led to rising homelessness and fueled inequality, making New Zealand the most unaffordable housing market among developed nations.

Although house prices have already started to come off their highs, they are still a long way from regaining their pre-pandemic levels.

The 9% drop forecast for this year in the latest Reuters poll of 11 housing market analysts from May 11-26 is much larger than the 0.8% drop forecast in a February poll.

A further decline in house prices of 2.0% is forecast for 2023.

“The cost of housing in New Zealand is a national embarrassment. The reasons are deep-rooted. Ultimately, it’s because the supply of new housing just hasn’t adequately responded to periods of rising housing demand,” said Jeremy Couchman, senior economist at Kiwibank.

Couchman is forecasting house prices to fall by just over 10% this year in what he calls a “short and sharp” correction.

While such an expected drop was a long time in coming, the drop may be too small to offer much respite for first-time homebuyers after prices rose by over 250%, almost four times the average increase in OECD countries.

The Reserve Bank of New Zealand, which includes house prices as a factor in its policy deliberations, has already hiked interest rates by a total of 175 basis points since October last year and on Wednesday signaled there was much more tightening ahead.

Property prices are expected to fall by around 20% or more before reaching sustainable levels.

ANZ, Macquarie Bank, Infometrics and Real Estate Institute of New Zealand (REINZ) said average house prices would need to fall by 30-50% – about as much as they did after the 1973 oil shock – to make housing affordable.

While lower house prices would help the government’s affordability goals, it would be a bitter pill for recent homebuyers who see their capital shrink and expect higher repayments as interest rates rise.

Rising interest rates will hamper the ability to service mortgages… Credit restrictions, including minimum deposit requirements, will hurt first-time homebuyers who don’t have support from Mom and Dad’s bank to meet the initial deposit,” said Ankur Dakwale, research analyst at Bayley’s Realty Group.

When asked how house prices are in New Zealand on a scale of 1 to 10, from extremely cheap to extremely expensive, the median answer was 9. For Auckland it was 10.

Still, not everyone expected prices to fall this year. REINZ and Infometrics forecast house prices to rise by 5.0% and 4.1% respectively this year.

“Buyer sentiment has shifted from fear of missing out to fear of overpayment, and all of this is having a dampening effect on house price increases,” said David Shaw, real estate market analyst at REINZ.

“(But) even a drastic slowdown in house price increases over the past year will still leave moderate increases.”

(For other stories from Reuters Quarterly Housing Market Surveys:)

(Reporting by Vivek Mishra; Polling by Prerana Bhat, Arsh Mogre and Md Manzer Hussain; Editing by Ross Finley and Kim Coghill)

Copyright 2022 Thomson Reuters.


About Author

Comments are closed.