NEW ZEALAND (Commonwealth Union)_The New Zealand house price index fell by the most in 30 years last month, and sales activity was particularly weak, fuelling fears that prices would fall even farther than many economists had predicted.
According to data issued on Tuesday by the Real Estate Institute of New Zealand, the house price index, which measures changes in house prices on a like-for-like basis, declined for the 11th straight month and is currently down 10.9% from October last year. The median property price was 7.9% lower in October of last year.
According to Kiwibank experts, the house price data was a dismal read, with the index falling the most since the early 1990s. “Increased mortgage rates continue to impact on property prices and sales activity,” they wrote in a note.
House prices in New Zealand climbed about 40% throughout the pandemic, peaking last November at levels consistently regarded as unsustainable by the central bank. However, as the central bank rapidly raised the cash rate and mortgage rates followed suit, values fell precipitously. According to CoreLogic’s annual Best of the Best Report, the New Zealand property market saw a larger-than-expected fall in 2022, confirming that this year was truly a buyer’s market.
According to Kelvin Davidson, CoreLogic NZ’s chief property economist, tougher lending laws, LVR rules, higher mortgage rates, and more listings have shifted the balance of power away from sellers. “Our projection proved correct, but we, like many others, underestimated the severity of the collapse in sales volumes and the extent to which house values would plummet,” Davidson said. “It’s evident how slow sales activity has been this year, as customers have taken their time making purchasing selections and merchants have been able to’sit tight’ – assisted by low unemployment.”
Total sales volumes for the 2022 calendar year were anticipated to be about 67,000, the lowest since 2010, and the third-lowest in the previous three decades.
According to Davidson, national average home values have fallen roughly -10% from their peak, with another -10% drop projected in 2023. “To put this in context, the Great Recession ended with a -10% drop from peak to trough,” he added. “It was also our judgement the extent of the housing collapse would be variable across the country, so it’s not odd to find varying degrees of resiliency. Previously robust places such as Porirua, Upper Hutt, and Lower Hutt have become some of New Zealand’s weakest markets, while several parts of Canterbury, including Christchurch, Ashburton, and Timaru, have fared slightly better. Nowhere, however, is immune to all market influences.”
“Overall, then, 2022 has been a hard year for the property market, which would have been worse if employment hadn’t been as strong. The job market will be critical again next year in minimising the size of price drops and the potential scale of negative equity and/or mortgagee sales.”
Large deposits, according to Davidson, have remained a hurdle, particularly for investors (40%), though the sheer magnitude and pace of mortgage rate hikes has certainly had a greater influence. “Not only has this limited the amount of money available to new borrowers, but it has also required a considerable adjustment for existing borrowers as they have rolled off previously lower fixed rates and onto a significantly higher repayment schedule,” he explained.
According to CoreLogic research, first-time house buyers (FHB) have maintained a healthy market share, rising from roughly 20% of purchases in early 2022 to 24-25% in the second half of the year. Meanwhile, mortgaged multiple property owners (MPOs, including investors) have been quieter, albeit cash MPOs have gained market share.
