Three major macro negatives are all now in play, says economist
House prices are expected to fall further than previously thought, with the ASB bank predicting a 6% drop by the end of the year – bigger than the 2.9% drop it previously forecast. ANZ, meanwhile, is predicting a 7% fall.
The prediction comes after the release of the Real Estate Institute’s house price index for January, which showed a further slowdown in price growth and a sharp fall in the number of houses sold.
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“We've long been expecting a marked slowdown in house price inflation in this year, driven by the confluence of three major macro negatives – higher mortgage rates, tighter credit conditions, and rising supply. These are now all in play,” Mike Jones, ASB senior economist, told NZ Herald. “But the extent of the apparent credit constriction amounts to an extra handful of sand in the market's gears that we didn't previously allow for.”
Jones said some people who have been using their growing paper wealth to back their borrowing would be affected by house prices falling.
He also said the housing boom was critical to consumer spending.
“The fact that boom now seems to have run its course, I think, does have implications for consumer spending going forward,” Jones told the publication.
Jones said even if house sales recover some in February, demand was no longer running ahead of supply.
“Separate data from realestate.co.nz confirm new listings are finally trending higher,” Jones told NZ Herald. “This, coupled with softer sales, means unsold inventory across the country is around 405 higher than the lows in mid-2021. This slackening in the market's supply/demand balance is eroding support for ongoing house price increases.”
