And they still have a way to go yet, report reveals
A new report has revealed home values have eased for a 13th consecutive month as the New Zealand housing market is still some way off finding its floor.
According to the Real Estate Institute of New Zealand (REINZ), house prices dropped another 1.2% month-on-month (mom) in seasonally adjusted terms. This is a softer fall than experienced during November, however basically in line with the monthly downturn experienced since the market peaked in 2021.
ASB Bank economist Nathaniel Keall (pictured above) said the New Zealand housing market correction was still looking orderly and was proceeding at a slower price than the large gains of the boom years.
“It’s a sizable decline in cumulative terms as all-up, prices are now 15% below their November 2021 peak based on seasonally adjusted REINZ data,” Keall said.
“Using March 2020 as our rough starting point for the dramatic COVID-era upswing in REINZ Housing Data, about half of those house price gains have now been eroded. By the end of the current cycle of price declines, we expect most of those post-pandemic gains will have eroded.”
Canterbury is defying the odds
Keall said Canterbury remained by far the most significant outlier in the current house price correction, with the market continuing to soften at a much slower pace than elsewhere (down just 0.2% mom).
“Canterbury’s house price cycle has followed a different time-sequence to most of the rest of the country,” he said. “The region’s post-earthquake construction boom took place earlier than that elsewhere in New Zealand, with the upshot that affordability has been a bit less stretched than in other regions over the past decade.”
Keall said the regional split remained largely in line with what had been seen over prior months.
“After a brief blip last month, Wellington – where affordability was most stretched to begin with – continues to experience some of the sharpest declines of any of the main centres down 2.2% (mom),” he said.
“The downshift in Auckland continues to be only a fraction sharper than the national average (-1.4% mom versus -1.2% mom). While tumbling prices in Auckland and Wellington may have been the canary in the coal mine for the current housing market downturn, the factors putting the market under pressure (like higher mortgage rates) are well and truly national in scope at this point.”
Are we close to hitting the bottom of the market?
Keall said as housing market activity metrics continued to soften, it was reaching fresh milestones.
“Sales activity fell 6.1% mom hitting a fresh 12-year low,” he said.
“After flirting with a fall last month, average days-to-sell has ticked up again to 48, which is a fresh (ex-lockdown) 10-year high. Softening activity is once again a nationwide feature too, with sales activity falling 6.7% and days-to-sell hitting 48 even when the main urban centres are stripped out.”
Keall said borrowers were facing the likelihood of further substantial increases in mortgage rates over the coming months, following the RBNZ lifting the official cash rate 75 basis-points in November.
“We expect a further 75bps of OCR hikes when the RBNZ kicks off its first meeting of the year in February, with the OCR set to peak at 5.5% in mid-2023,” he said.
“The upshot should see variable mortgage rates head north of 9%, with fixed rates settling in a 7% -8% range. The RBNZ won’t take the OCR back down again until it is confident inflationary pressures are coming under control, which we don’t think that point will be reached until mid-2024.”
Mortgage advisers are here to help
Cameron Marcroft, NZ Adviser’s Top Adviser for 2022 and director of Auckland brokerage Loan Market Central said the latest OCR increase would result in more Kiwis seeking a mortgage adviser for expert help and guidance as they figure out how to structure their mortgage going forward.
Loan Market Central was also awarded as one of the Best Mortgage Brokerage Firms in New Zealand. See the full winners here.
“There is a lot of uncertainty out there at the moment and in today's environment, quality advice is more important than ever,” Marcroft said.
“As advisers, I think we have had a golden run over the past few years and now this is where we really get to shine, by creating a clear and sustainable game plan to help our current clients weather this storm and ride the wave out. The golden weather will return and we want to make sure all of our clients are covered and in a good position to take advantage of the market when it does.”
Financial strategist and money coach Hannah McQueen, the founding director of enable.me, is on a mission to help Kiwis be smarter with their finances.
“I wanted to better understand the behaviour around the economics component of financial success, not just the financial literacy, so this was when I started enable.me approximately 16 years ago,” McQueen said.
“It is our job is to help people do better and get their money working for them. This translates to a 300% increase in savings for our clients and help them pay their mortgage off in 10 years rather than 30. We help our clients prepare for their retirement early on and facilitate using equity to buy investment properties or assets.”
What do you think about home values falling across the country? Let us know in the comments below.
