The housing boom is now officially over, according to Westpac's economists.
Releasing the bank's latest Home Truths report, Westpac's acting chief economist Michael Gordon said, "There is now enough evidence to declare that the housing boom has ended, with prices turning downward in the last two months."
"We've long been saying that house prices can and would fall once we saw a meaningful rise in mortgage rates.
"That has now happened, with fixed term rates now factoring in the prospect of Official Cash Rate hike over the next couple of years."
Gordon said while a cooling of the housing market was expected, the timing was always uncertain.
"The economist Rudi Dornbusch had a saying to the effect of: changes in the economy take longer than you'd expect, then they happen faster than you'd believe," the Home Truths report said.
"That certainly seems to have been the case with the New Zealand housing market.
"We've been predicting for some time that once mortgage rates rise from their lows, the housing boom would cool off and tip over into modest price declines.
"However, the timing of that price drop has always been fluid.
"At one point we expected it to begin in the early part of this year, later pushing that out until the middle of the year when it seemed that the market still had quite some momentum behind it.
"But now we have enough evidence to show that the turnaround began in late 2021.
"The Real Estate Institute of New Zealand House Price Index fell by 0.9% in January, the second straight month of decline.
"As in December, the Auckland region led the drop in prices, but now the rest of the country has joined in as well.
"Prices are still up 20% on a year ago, reflecting the rapid price gains through much of 2021, but that measure is now coming down fast.
"House sales have been steadily declining over much of the past year.
"But while that previously could have been described as a moderation in the Covid-era boom, we're now beyond that point and sales are running below their pre-pandemic levels," the report said.
You can read the full Home Truths report here.
The comment stream on this story is now closed.
- You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, register here (it's free) and when approved you can select any of our free email newsletters.
85 Comments
A 30% drop is not to be considered a crash in this market. Just a return to normality, just like the interest rates already have done.
The trend is your friend, until the end when it bends.
30% falls are not going to happen. The idea was to just bring a controlled halt to the unsustainable gains. Its 2008 all over again a small dip and a plateau for a while before the long term upward trend continues.
Falls of *at least* 20%, if not 30%, are quite plausible if the RBNZ is true to its word in its OCR hiking trajectory.
I don't think they will be, that's why I am sticking to a 5-10% fall.
In nominal or real terms?
If real - has the market therefore already corrected the 5-10%?
I am talking nominal.
But in a high inflation environment, you are right that real house price movements are important.
And yes in real terms it's probably already corrected 5-7%.
Be interesting to see how long inflation sustains itself.
I get abused for give a view to that we could see a significant crash in real terms coming up. Ie flat to falling nominal prices with 5-10% inflation for 5-10 years.
Perhaps that scenario doesn’t play out and we fall back into deflationary recession- but again that is bad for asset prices in both real and nominal terms when the OCR has barely lifted from 0 because it means widespread debt defaults
IO
I note your shift in view from a crash of 50% in prices or real terms (that you have claimed over the past seven years) a la Shiller, to now one of a "crash" in nominal terms only.
You also probably need to note that HouseMouse has posted that inflation will be done by the end of 2020.
I’ve also noticed you keep trolling people about the quality of bank economists but that doesn’t add much to any argument, like the post above 🙈
I’m off fishing so look forward to not getting dragged into the gutters with you on here this afternoon about peoples credibility with vague and misleading troll like comments 🙂
Hope your kids rental properties are going well and your mates at the property investor association don’t get impacted too much in real or nominal terms in this rising inflation/OCR environment 👍
IO, it's called debate - its what the comments on this site are all about. It appears that you and HM want the freedom to make statements (usually either poorly substantiated or contrary to widely held views) without being challenged.
I had to chuckle the other day listening to an interview.
You have held Shiller up being a Nobel Prize winner as one who can't be challenged.
The comment made was: “Shiller has been consistently pessimistic about markets, and given a long enough horizon, Shiller is bound to be able to claim that he has foreseen any given crisis”.
That was Eugene Fama, the co-recipient with Shiller of the 2013 Nobel Prize in Economics.
So it is pleasing to see you after seven years of constantly calling housing burst to modify your view after being blinded by Shiller. Not surprising as my Nobel Prize winner is outsmarting your Nobel Prize winner.
Maybe all these years you should have been reading a little more widely and noting what bank and other economists say rather than outright dismissing them outright as both you and HM do.
I am very happy for my views to be challenged so it's a bit hypocritical of you to get in a tizzy when I challenge yours or other's views. Bank economists, in particular, you seem to view, rather oddly, as some sort of all knowing sacred cows, whose views cannot be challenged.
I find that very strange, especially when their track record is generally abysmal.
I have acknowledged several times that my views are contrarian and could well be wrong. I have also said, several times, that we will need to wait till quite late in 2022 to know.
I have also said it's really neither here nor there for me personally, although like anyone I would rather me paying lower interest rates when I come to refinance. I have plenty of fat in my budget.
Anyway, have a nice day. I think my position is clear, and I am not going to talk about this anymore.
2022, and I haven't said inflation will be 'done'. I think from late 2022 through to late 2023 it could still be in the 3-4% range. So not 'done' but a lot lower than now. I guess you could say that I think *high* inflation will be 'done'.
And inflation subsiding is only part of the reason I think the OCR won't be lifted above 1.75.
HM
Now don't get upset, but it is important to consider a contrary view.
" I think the OCR won't be lifted above 1.75"
Not what Adrian and bank economists think - RBNZ have signaled the OCR would continue to rise, potentially to around 3.4% by late 2024.
If the OCR rises even to 3.% the likelihood of mortgage rates returning to 2 to 3% as you expect in a couple of years are extremely unlikely.
At this stage I'm tending to run with RBNZ and bank economists.
Fine, that's your prerogative. I really don't care.
Go with the RBNZ and the bank economists who have such an AMAZING track record on forecasts.
Haha
Perhaps they mistakenly thought free market price discovery might be allowed to apply to property?
If we make it top priority surely the governments and central banks can make money meaningless and transfer all wealth to asset owners.
The more important measure is real house price to median income. As a real house price decline might look actually like a price rise if wages have not sufficiently risen.
In nominal or real terms? 😜
Would love a go on your crystal ball if your hire it out.
THAT WILL NEVER HAPPEN... And has never happened before, never and nowhere. Not even after ludicrous increases in the past 2 years...
Look at the Tesla chart. Very much reminds me of last housing boom 5 years ago and the current one (zoom out to 5 years and look at the past 2-3 years): https://www.tradingview.com/symbols/NASDAQ-TSLA/
Yes a lot of speculative stocks already down 30-50% and the Fed hasn’t even started withdrawing stimulus.
Add the close to 10% inflation to that picture made the US share market is retracting significantly (both real and nominal terms)
This is quite a misguided comment even for you Carlos.
In 2008 the OCR was slashed from 8% to 2%. This is what prevented the correction from turning into a crash.
In 2022/2023 the OCR is being rapidly raised from 0.25% to 3.50% in an inflationary environment. This is a very different situation and will result in very different outcomes.
Exactly.
And the impact of rising mortgages rates is intensified with much higher levels of debt.
Another kiwi in their 50-70’s with confirmation bias caused by 40 years of falling interest rates (always resulting in higher asset prices).
Hard to shift paradigms after decades of confirmation.
I couldn't agree more. We are in a completely different scenario than 2008. The central bank is walking a tightrope that is almost impossible to navigate. Rein in inflation without causing a massive correction to an extremely overvalued housing market.
When push comes to shove, and if inflation proves to be a much harder beast to tame, they will be left with little choice but to keep hiking, regardless of the impact on housing. Things are about to get very interesting.
Hmmmm..
The desire to capitalise falling discounted present values of cash flows associated with residential property assets diminishes as interest rates rise.
30% falls are not going to happen.
Why? Because you say so? The venerable Chris Joye in Aussie says that it is quite a reality with a rise of only 100 basis points in the OCR.
What's your narrative to suggest similar cannot happen in NZ?
30% falls are not going to happen.
You're right on the money, Carlos.
We'll see an orderly winding back of housing market activity - with no major price movement (upward or downward).
Inevitably, those people yearning for a "crash" will be disappointed. But they're getting used to it. 😁
TTP
Yes sadly you will be waiting a lifetime for a crash in New Zealand. Its been a bit of a mugs game betting against the New Zealand property market. There comes a point where you just admit your wrong and move on.
*Betting against the government and Reserve Bank... not so much a 'market'.
"tothepoint" you are right on the money and so much "on point" ..... here's a post I wrote today, from another article, so we have absolutely nothing to worry about - great !
No worries about all this stuff .....the "astute property investor" has ALL the answers .....once covid is sorted, the immigration tap will be turned on, more fodder for sales and renters alike ......large companies will attract high worth/highly skilled individuals from overseas, so that covers the more expensive market, both for renters and sales .....no worries about interest rate rises and these will be happily paid by the renter, ably assisted by the Government if a top up is required, through the taxpayer funded Accommodation Supplement.....if there is a downturn or even a crash (can't see that happening, as we are immune from world events) but if it does, the Government will step in and generously add further tax payer money via the Accommodation Supplement, for the renters who may find themselves out of work etc) so rents are "Government Gauranteed" :)
And here's the kicker folks - if prices do decrease, we'll just pick up those bargains for our portfolio.
Ahhhh ......true bliss .....financial freedom courtesy of your taxpayer money and the NZ Government.
Must be beer o'clock ! ...happy daze :)
So after the horse has done 3 circuits of the track they are shutting the stable door.......Far too late imo.
Only sensible thing is to turn the valuations back to the Sept-Dec'19 frame.
This way brings normality to the market and all that craziness which happened due to our unintelligent decesions by RBNZ are erased out.
So any prospective home owners should look at valuations for Sepr-Dec 2019 and only be prepared to pay that money. Otherwise they are making a big mistake.
And how did you reach this arbitrary conclusion?
Because our dear leader said so end of last year.
Housing was already severely overpriced in 2019. Any normalisation in interest rates, even then, would have had significant impacts on future prices.
I don't exactly agree, although I agree with the spirit of what you say.
I think if it's the 'right house' at a price that a FHB can afford, they should look to buy at a price somewhere between the peak last year and late 2019.
So say 15-20% lower than peak.
In the still unlikely event that prices fell 30% they wouldn't be in a huge amount of negative equity.
But I agree that in many/most cases FHBs should not be entertaining buying at prices at or near their late 2021 peak.
2008 valuations are far more sensible
2008 valuations are far more sensible
2008 was pretty bubbly. Even in NZ.
yes 800k should be Auck median.
The composition of Auckland properties is changing. Many more tiny little shoeboxes. Should be even lower.
"The economist Rudi Dornbusch had a saying to the effect of: changes in the economy take longer than you'd expect, then they happen faster than you'd believe,"
A similar saying often paraphrased from a Hemingway novel goes: "slowly at first, then all at once".
Such is the nature of human sentiment - the real driver of markets - and I'm sure this time is no exception.
Plan accordingly.
Well, it was pretty obvious in December last year that prices were falling away, but I guess economists rightly value their data to validate trends.
The worm has turned. Thank goodness for that. This is how we rebalance things. It's for our own good. I'd like to see a negative per cent per month all year. However, we live in extreme times.
yep dec 2021 was the top of the market
Feels like 2020 all over again.
We didn't have inflation and rising rates in 2020 so this is very different.
My prediction is that around the middle of the year global equity markets have a significant fall as they will no longer have fed's printed money holding them up during the normally low liquidity north summer. This might well flow to further negative sentiment in the property market.
Gets worse if sharemarkets are crashing but inflation is still rising.
Fed/RBNZ won’t be able to do anything.
Raise rates to control inflation - asset prices fall further.
More stimulus to avoid debt defaults and inflation rises even further and society completely breaks down
Yes with inflation, central banks have little ability to save the day like previously. And after being able to save the day for so long, everyone is complacent expecting any correction to just bounce back like before. It's extremely simple but very few people understand the dilemma. Let's hope inflation does come down soon.
More stimulus from the Fed while inflation races away at 40 year highs - I’m order to save those with too much debt? Don’t think society would stand for that - the pitchforks would literally come out at that point.
🙈🙈
Except there's no LVR removal, or 0.75% OCR cut, or shortage of housing stock, or knee-jerk government over-reaction.
From where do you predict the injection of welfare money will come this time around?
Oh no, house prices going up again :-(
Many doomsayers today. Fear not: Jacinda and Grant will do whatever it takes to ensure house prices continue to rise, no matter the madness of it. Their re-election depends on it.
Such as?
Let the flood gates open to immigrants & repeal CCCFA - something they're already in the process of doing...
They will need to do more than stabilise house prices to get re-elected.
Their covid response is starting to cost them politically, and just wait for the fallout come April / May when Auckland Council consults on the government's high density zoning mandates, which the council will make clear have come from the government and are largely non-negotiable.
Remember you heard it from HouseMouse first.
I still don’t understand why you think Labour alone will bear the brunt of the fallout from the RMA changes (if any), when it was Natbour policy. It was Judith Collins who put out the olive branch that led to the changes, and current National co-leader, Nicola Willis worked with Labour on the policy.
Fair point, but ultimately it was down to Labour whether it advanced or not.
I couldn't really give two hoots about it, apart from philosophically viewing it as undemocratic, but a lot of people will. And I still think Labour will get more blame for it than National.
Amazing how anti-freedom some folk are, so against others being able to build on their very own land. Horrible authoritarianism, and the bending over backwards to try to equate removal of restrictions with "mandates" is odd indeed.
The zoning IS a mandate. Yes, you can be cute and say it doesn't force anyone to build anything...
But it's an anti-democratic mandate in terms of it forcing zoning on communities without them having a say on it.
You're pointing out precisely why zoning is antidemocratic and anti-freedom in the first place. Plenty of folk want to build on their own land yet others feel entitled to deny them that freedom.
Bit cute to equate removal of regulation with "mandates" and force.
What gives you the right to deny others freedom on their own land? It just seems entitled and draconian.
That's a fatally flawed concept of 'freedom', one that has infested the extremists in the anti-vaccination campaign.
Giving individuals all the freedom in the world - eg. to build a 6 storey apartment on a suburban section - denies other people freedoms (ie. their sub, privacy etc is obliterated)
Most people's notion of freedom revolves around a balance between individual and community freedom.
That's merely mislabeling a sense of entitlement a "freedom", and a spurious equating of people who favour less regulation and more freedom as 'extremists'.
Nothing stops a person buying the land next to them and keeping it in the state they want it. They're free to.
Mysteriously we've seemed to have a massive amount of such "freedom" that's actually simply ruling over what others can do on their own land.
There is a counter Intuitive issue with all this.
Just like when I put out if they want to encourage people to move close in, then they have to lower prices on the fringe. But the theory from Adam Smith, Alan Evans et al explain why, and Alain Bertaud et al, plus my own personal experience says its true in reality and as can be seen in examples of truly affordable jurisdictions elsewhere.
There are two issues with the change in zoning,
1) It is a betrayal of the social contract that the original and most of the subsequent owners had with the council when they gave them control to represent their community interests. To override this is undemocratic. Yes, needs change but in a democratic sociality they could, for example, put it on the ballot at the next local elections and let every neighborhood vote as a majority what is best for them.
2) You say they want to build on their own land. For most of them, this is false. They will sell and let others build on it. What this means is these people have had the benefit of an earlier zoning, and would have been the NIMBY that tried to stop everything while they were living there, but as soon as they want to leave, take the big money and betray the rest of the neighbours, because they don't have to live with the consequences. This is the worst type of NIMBY.
This up but not out zoning, that overrides the very tenant of community control and good neighbourhoods, will end badly. It's easy to logically see why if you do the numbers.
Show your evidence, then, perhaps:
1. When NIMBY zoning was voted in? And why did people buy in a major city expecting nothing about the city to change? That seems incredibly poorly thought out. Also, how many people bought their freehold land back in the days when councils were instituted expecting freedom to build on their own, freehold land?
2. Numbers of people who don't wish to develop their own land? However, the point's meaningless as when they sell the next owner wishes to build upon their own land.
Besides that, people are perfectly free to sell their land, and their neighbours are perfectly free to buy that land to keep it in the state they want.
Out but not up makes no sense as it's too expensive and too authoritarian. It's easy to logically see why if you do the numbers - e.g. Melbourne City Architect Rob Adams points out that for every million of population added along existing arteries through reasonable intensification the city will save $110 billion of infra cost compared to spreading further at the fringes.
The authoritarian desire to prevent others having freedom to build on their own land coupled with the resistance to sharing the burden of cost those NIMBYs create is a massive problem.
They should just stop being so authoritarian.
They havnt done either of those things yet, and even should they there is no guarantee the migrants will be purchasing anything, nor able or willing to pay the required rents (not to mention migration is a two way street) and the banks reluctance to lend occurred prior to the CCCFA changes....but yes they can try those things, and others, but it is a sign of desperation not control.....the sentiment has changed and the spruiking is falling on deaf ears.
Everyone talking an optimistic game while crossing their fingers and hoping like hell.
It's happening- what was is 160,000 new openings for visas this year? On top of it we get these stories https://www.interest.co.nz/property/114467/almost-11000-residence-visas…
CCCFA is in the process of being tweaked aswell...
You do realise those residential visas are going to people already here?...and the CCCFA review (regardless of its eventual outcome) wont change banks risk aversion?
Wait & see Frank...
Run for the hills, oh no, not possible. Got a huge mortgage.. banks will find you..
... post the keys back to them ... from Australia ...
As previously stated, I sold.
I don't know if this is the inflection point but we're going to have a hell of a hangover as we deleverage. This was a huge bubble.
ok, so the roller coaster has been through the crest at the top and now we are white knuckled & holding on, slowly starting our decent. With our eyes closed we contemplate the drop. . . . .how far, how long and how fast? Some will lose their lunch, some will lose their wallets, even their dignity, but for the most part - we survive.
Weather forcaster has long been saying it was going to rain, and now it finally has started spitting...this has been confirmed by them sticking their head out the window...
"DGM Rant" from Oneroof today: Auction rooms empty as clearance rates fall
About time. I would suggest realtors stop trying to sell properties by auction.
"The economist Rudi Dornbusch had a saying to the effect of: changes in the economy take longer than you'd expect, then they happen faster than you'd believe,"
This rings particularly true.
I've always assumed one of the key aspects that economists don't factor into their models is the role human psychology. They build a model that assumes all decisions are rational and are based on the input values (prices, interest rates, supply, demand). Modelers like numbers that can be predicted and measured to feed into a model
But, as is displayed frequently on the comments on this site, people often ignore those factors and instead fall back on their prevailing beliefs. You can tell someone interest costs are doubling, prices relative to incomes are some of the highest in the world, and construction vs population growth is the probably the highest its been in NZ history. Instead of factoring in these clearly shifting factors, they fall back on their beliefs "well back in 2008 prices only fell x percent" etc.
So when economists say prices will fall 10%, what's baked into that is the theory that prices got here purely due to rational decisions and was solely determined by those input factors. Therefore the amount they will fall will reflect the change in interest rate, supply, demand etc.
But the models fail to factor in what happens if those preexisting or prevailing beliefs, such as "prices always go up", start to shift. I think this is part of the basis of the quote "then they happen faster than you'd believe."
With you on this Miguel 100%.
The property market in NZ has a large amount of investor activity. This is a much more homogenous population than owner occupiers in terms of compelling reasons to move buy/sell property . Schools, jobs, expanding / contracting families etc are unpredictable reasons for owner occupiers to exit / enter the market.Investors look at a variety of indices but the two most influential must be yields and capital gains to guide their financial strategy. Both of these are facing challenges that will start to drive sentiment away from property as an asset class. The question will be how much of a capital gain decrease, over how short a period, will be sufficient to start a run because of a herd movement. This, I firmly believe, will be the difference between a correction and a crash.
Yep and a big reason why the reserve bank aren't raising the OCR nearly as fast as they dropped it.
Let's just take a moment to question why we ordinary citizens are about to suffer a year's worth of high inflation just so investors have a nice soft fall.
My thoughts exactly. I’ve been harping on about they fact that 40% of investor lending is interest only. Run the numbers at 2.5% vs 6% and it’s a colossal difference. Then add in interest deductibility changes.
Then add in the fact that those leveraged capital gains switch to capital losses and how long can people “hold on”?
everyone likes to describe why homeowners will happily “sit tight” through any price falls but the equation is very different for investors
Cool! Let's all go out and buy another house then 😃
The people who will get the most screwed are those that cannot develop or subdivide in the future etc. Apartments if over paid display this.
Often FTB buy the small subdivided house on the b site, if over paid not good.
Those sitting on land can always subdivide, and while they may not get premium prices will be able to deleverage via this route in time, but for a short term the only buyers with be opportunists, trying to find someone suffering from the three Ds.
The collapse of hospitality will provide a few.
Unless unemployment goes nuts the quality stock will come off the market leaving the leaky and other problematic crap, just like in the GFC.
Those sales that go through on these make it look even worse.
I remember a cantilevered platform house in Onetangi sell for 2mil early in GFC that had a 3mil valuation, would be worth 6-7mil at the recent peak, so they do happen.
I thought that Westpacs economists' prognostication record was so fallible they had been permanently ignored by the media.
Yep 30% fall has no impact on the amount you owe, but a huge impact on your ability to remortgage when you need to...
If in any doubt on your ability to remortgage in the event of a 30 % fall, best to panic early.
historically banks transfer low/negitive equity, think about it who has the bigger problem.....
This market is so overpriced that 30-40% down would be a healthy start, this spoken from a valuer with 30+ years experience
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.