According to the Real Estate Institute of New Zealand’s (REINZ) House Price Index, New Zealand house prices have declined nearly 13% from their November 2021 peak.
Corelogic property economist, Kelvin Davidson, believes the Reserve Bank’s uber aggressive monetary tightening, which has lifted the official cash rate (OCR) to 4.25%, means that house prices and sales volumes will likely not bounce back until 2024.
New Zealand has lifted interest rates more than anywhere else.
Interviewed by Stuff.co.nz, Davidson noted that he has downgraded his forecasts in light of this month’s 0.75% OCR hike from the Reserve Bank.
“For a while there I might have said sales activity would be starting to pick up, house prices – if not rising necessarily – at least not falling”, Davidson said.
“Monetary policy works with a lag and there’s already been a big hit delivered”. So, “we have a central scenario at the moment that 2023 will be another pretty quiet year for sales”.
“It’s definitely a serious property downturn and more to come, for sure.”
Davidson pointed out that there would only be 67,000 or 68,000 residential property sales this year, which is the lowest number since 2010. And he believes that sales volumes will remain below 70,000 next year as well.
ANZ senior economist, Miles Workman, was also interviewed by Stuff. He pointed to ANZ’s forecast that New Zealand house prices would fall 18% peak-to-trough in nominal terms, and by 27% in real terms (i.e. adjusted for wage growth).
But Workman also believes the latest 0.75% hike in the OCR by the Reserve Bank “present fresh downside risk to this forecast”, which had previously tipped prices to find a floor in mid-2023.
The Reserve Bank has demonstrated that it is determined to get inflation down, which could “shock” the housing market, according to Workman.
“Housing often seems to get away from ‘the fundamentals’ in one direction or another as ‘animal spirits’ do their thing. In the upswing, animal spirits were categorised as FOMO. Perhaps now FOHIR (fear of higher interest rates) will manifest in a sharper downturn than we all expect”, Workman said.
The timing could not be worse for Prime Minister Jacinda Ardern, who will go to an election late next year with the economy likely grinding to a halt, housing wealth eviscerated, and thousands of households in deep mortgage stress.
