New Zealand house prices to collapse into mid-2023

Last week, ASB released its Housing Confidence Survey, which showed that Kiwi “housing confidence has finally cracked”, with confidence collapsing to a 13-year low in response to rising mortgage rates and heavy price falls:

With the housing downturn now plain to see, and house prices around 8% off their peaks, confidence is finally crumbling.

Of most note, “the percentage of kiwis expecting house prices to keep rising over the next 12 months has plummeted from a net 11% expecting them to increase last quarter, to a net 31% expecting them to decrease in the three months to July”:

Kiwi house price expectations tank.

In its latest Quarterly Economic Forecast, ASB forecasts that the “orderly” house price decline will run all the way into mid-2023:

The housing market is likely to continue its orderly price retreat until around mid-2023.

ASB also warned that the full impact of the Reserve Bank of New Zealand’s (RBNZ) aggressive interest rate hikes have yet to be felt. In turn, household consumption will slow over the next two years:

The impact of rising mortgage rates will continue to build into next year, given the lags as fixed-term mortgage rates need to be rolled onto new rates…

We expect consumer spending volumes will be quite flat for much of the next 2 years.

ASB makes a pertinent point. The latest housing affordability report from CoreLogic showed that the percentage of Kiwi household income required to service a 25-year, 80% loan-to-value ratio mortgage has risen to a record high 53% on the back of rate hikes.

However, because the majority of Kiwis are on fixed rate mortgages of two years or less, existing mortgage holders in New Zealand will soon also experience a sharp lift in their repayments, which will drain disposable income and their ability to spend.

That is when the impact of the RBNZ’s aggressive rate hikes will truly be felt. Many Kiwi households will also be thrown into negative equity following heavy house price falls.