Average home prices are expected to fall 8.9% this year
New Zealand house prices will fall further this year than previously expected, as the Reserve Bank continues to aggressively lift interest rates, according to property analysts as they predicted a peak-to-trough slump of more than 20%.
Average house prices rose by more than 40% at the height of the COVID-19 pandemic, hitting their peak in November 2021. A month after, the central bank started to aggressively raise interest rates to a 14-year high of 4.75% and flagged further rate hikes to as high as 5.5% later this year, which is likely to continue to put the retreating housing market under pressure.
A Feb. 17-27 Reuters poll of 10 property analysts found that average home prices were expected to fall 8.9% this year, up compared to a 6% fall in a November poll, then lift by 2.8% next year, down from the 4% rise expected in the previous poll.
“The reason for falling house prices is the very sharp increase in interest rates, which is making affordability of repayments quite substantially worse,” said Brad Olsen, principal economist at Infometrics.
When asked how much average house prices would fall from peak to trough, some analysts gave a median estimate of 21.8%, with forecasts of between 19% and 25%.
A like-for-like analysis of the latest poll and the previous survey revealed that more than 80% of the respondents now expected a bigger peak-to-trough home price fall, while the remaining percentage left their forecast unchanged from the previous poll.
House prices have nearly doubled in the last seven years. That combined with the relatively small decline and significantly higher borrowing costs meant it would remain challenging for first-home buyers to climb the property ladder.
“The decline in house prices is one thing, but if you have got a cheaper house but no mortgage to afford it, you still haven't got a house under your own name,” Olsen said. “It still means affordability is out of reach for many.”
Miles Workman, senior economist at ANZ, told Reuters that house prices will further decline if “inflation remains a lot higher for longer than expected, requiring the Reserve Bank to be more aggressive with interest rate hikes. If that were to happen, mortgage rates would be higher.”
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