“They said ‘we will see a big house price correction’, and I’m not sure that’s quite true”
The government forecasted a significant slowdown in house price growth when it delivered its Budget this year, with the Treasury estimating that growth will peak at 17% in June 2021 before slowing to 0.9% by 2024 - something it said was “a sharp adjustment, but a very necessary one.”
CoreLogic NZ chief property economist Kelvin Davidson said that this projection is very feasible, however, he noted that this still does not amount to a ‘correction’ of the housing market. Despite a slowdown in growth, he said we are unlikely to see prices actually drop.
“We’ve seen a slowdown in price growth, and that has actually been going on since before the government made their housing market changes in March,” Davidson said.
Read more: What do Kiwis expect to happen to house prices?
“We have a 40% deposit requirement for investors, and that was very much intended to be a handbrake on price growth as affordability pressures increased in the market.”
“We had always imagined that there would be a slowdown around the second half of this year, both in terms of sales activity and house price growth,” he explained.
“That still seems to be the case, and the tax changes in March have just reinforced that outlook. So, it is entirely plausible that we will see the forecasted level of slowdown.”
“However, one of the phrases used by the government was ‘we will see a big house price correction’ - and I’m not sure that’s quite true,” he added.
“It’s a correction in growth, but it’s not a fall, so we do need to make a distinction between a slowdown in price growth and an actual fall in prices. Those are two separate things.”
CoreLogic’s most recent Pain and Gain report found record-high profit-making on re-sold properties between January and March 2021, and Davidson noted that almost everyone who resold in Q1 would have done so above their purchase price, regardless of where their property was located, who they sold to, or their property type.
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However, he said we are unlikely to see any further bold moves from the government with regards to housing, though it will undoubtedly remain a spotlighted issue for some time.
“Housing is still one of the government’s three key areas, but their major move was made in March,” he said. “That did come as a bit of a bombshell, and you can’t rule out the possibility of it happening again, but I think the chances of that are now relatively low.”
