Aggressive interest rate hikes by the Reserve Bank of New Zealand (RBNZ) continues to hammer the housing market, with vendors slashing prices across the country:
The prices on almost 5000 listings have been slashed in the past three months as more owners get realistic about their property’s worth in the current market…
Almost five times more real estate listings have had their price altered by an average 3.95% in the three months ending May 31, 2022 compared to the same period last year.
Real estate agents made changes to 15% of all residential listings on OneRoof during the same three-month period with almost 50% of those corrections relating to Auckland properties, OneRoof analysis shows…
“A lot of the time what people are doing is they are dropping the price and they are dropping it below where the market is and they are leaving money on the table for their owners” [Wallace Stratton agent Stefan Powney said]…
The vendor price cuts come as average values across New Zealand fell another 1.0% in May, according to Quotable Value (QV):
Average values in May were lower than they were in April in all of them except one…
The average value of all homes throughout the country was $1,030,221 in May, down $10,706 since April and down $33,544 since January…
The biggest declines since the start of this year were in Auckland -$71,543, followed by Wellington Region -$64,849 and Palmerston North -$46,655 (see the table below for the trends in all major centres since the start of the year).
“There’s no question that prices are falling, especially now as buyers take the upper hand in negotiations,” QV General Manager David Nagel said.
“It’s really just a matter of how much further values will fall before finding the new equilibrium…
“With interest rates likely to climb further to battle inflationary pressures, as well as economic uncertainty with the Ukraine conflict and continuing supply chain disruptions, we’ve still got a way to go before the market bottoms out,” Nagel said.
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The RBNZ’s ‘forward track’ guidance has the official cash rate (OCR) hitting 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023. If true, this would nearly double the OCR from its current level of 2.0%.
In turn, the RBNZ has forecast that that average mortgage rates will soar to around 6% in 2023, which would be more than double their pandemic low:
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Kiwi borrowers that stretched themselves to enter the housing market last year at rock bottom rates, therefore, face a nightmarish mortgage reset ‘shock’ once their fixed loan terms expire.
A significant house price correction looks ‘baked in’ for New Zealand. Whether it turns into a full blown price crash will depend on whether the RBNZ follows through with its ‘forward track’ guidance.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
