Westpac's economists are increasing the amount by which they think house prices will fall.
Writing in Westpac's latest Home Truths newsletter, Westpac's Acting Chief Economist Michael Gordon said they have revised their earlier forecast of a 10% fall in house prices and are now expecting prices to drop by 15%.
They expect prices to fall 10% this year followed by another 5% decline in 2023.
Their change of view has mainly been driven by interest rates rising more than they expected.
"A 15% drop seems very large compared to history, but to put it into context, it would only take average prices back to where they were at the start of 2021," Gordon said.
"That illustrates the ferocity of the rise in house prices during what turned out to be a brief period of super low interest rates," he said.
However Gordon also says the forecast of a 15% drop is based on national figures and the fall could be greater in some regions.
"Obviously there are some regions that will see a bigger than average decline, and indeed are already on track to do so," he said.
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112 Comments
Notice how the predicted falls just keep inching down little by little? First they suggested prices would be “flat” then -5% then -10%.
The tightrope between not wanting to spook the herd, but not utterly fail in your economic forecast.
If this is truly is the most anticipated crash in housing market history, we have not yet reached capitulation.
I think it is a strategy as you say. I know that they (banks) have been modelling this for ages (friend of a friend). They can't pre-empt the fall as it would risk a sharper correction, therefore it seems they release a forecast that is roughly in-line with the current situation.
The models produce a cone of probabilities. The headline number reported in the media will be their central scenario.
Yes, but the animal spirits variable can't be easily modelled. When people hop on the bandwagon or rush for the exits their behavior can defy rationality for long periods.
Hence markets can sometimes overshoot and undershoot fair value. Who knows, maybe people will hold calmly this time?
A 15 % fall would just take us back 6 months or so ... where's the gloomsterisers with balls , where's Big Bernie Hickey with his 30 % drop ! ..
C'mon DGM's , less of the namby pamby little numbers , a big beefy 30 / 40 / 50 % is in the offing ... make a splash , create the headline ... get gloomsterationalysing !
I'll have a go (whether it's gloom or optimism depends on your perspective!).
Median household income as at year ended June 2021 was $110,451. It grew at a rate of 4.5% over that year.
Assuming a similar rate of growth for June 2021-Auguest 2022, that's around $115,000 as a median.
I reckon by the end of 2022, the median house price will be a ratio of 5:1, or $575,000.
And I suspect actual numbers of sales will be around 50% down year-on-year.
.. nice one Kate : glad someone has the kahunas to man up to an informed opinion : love it !
I swear I'm not picking on you individually as some of your comments make a solid contribution to discussion/debate. Simply calling it out as I see fit.
"Kate", "kahunas", "man up"...
....ooooh ... I see wotcha mean , my bad ...
It's all good Mate (oops my bad)
This is an internet forum, Kate has been a long time contributor to these forums and know GBH well from these forums, if she is offended by what GBH says I think she can respond to him.
if you feel the need to make painful politicly correct assertions on all these posts and deliberately miss the colloquial nature of some the posts here, please don't.
I didn't even notice it! And regardless, I still take it as the compliment that was intended! :-).
Hi GBH - if Kate was Hawaiian she might be a Kahuna, and if she was a man she would physically have cojones - linguistics aside - that she has the balls to make a call on where house prices could be going in NZ is more than most bank economists are willing to do, male or female!
What do you make the peak median price Kate to calculate the drop in % terms?
National median in June 2021 was $815K - so to get down to a median of $575K - that's a 29% drop by the end of the year (if benchmarked to June 2021) but a 35% drop if from current median.
Hard landing.
As I have been saying, approx. 50% of the value of a NZ house is non-value-added costs, ie costs that are only there because monopolistic rentier policies allow it.
These policies cause the boom we have, and then the bust, to revert to the historical mean. Which the stats. show would need a drop of that magnitude to take us back to that.
Coincidence maybe.
Gummy - clearly you are not using the Govts deep rose coloured glasses issued when you had your covid booster shot. At least they are better than the Banks opaque version.
... they shot me 3 times , at close range ... currently in isolation , with covid ... but here's the go , as I see it : Kiwis borrowed hundreds of $ billions off Aussie banks , in an attempt to make fortunes off houses ....
If a crash does happen , the equity & gains vanish ... but the debt remains the same .... Aussie banks are smart buggers ! ... we are their debt slaves for the next 30 years ...
Only those that leveraged up in the frothy frenzy. Some used the lowest rates in history to clear all their debt and start building a vulture fund.
It's the Overton Window of economic forecasting.
There are going to be a lot of unfortunate first home bagholders in penury out there.
Printer8's "success" stories.
Yes, it will be a personal disaster for many and I really (all jokes aside) worry about the mental health effects of this hellish outcome.
On a brighter note, what say ye about the West Island? Any reports re cost of living, housing etc?
I'm in Auckland at the moment. Went over for a few weeks not long ago though. Housing is much cheaper. Cost of petrol and goods cheaper. Food a bit cheaper but not much. Fruit and vegetables seemed much cheaper though.
Visiting friends in Sydney at the moment. Shocked at how much cheaper rent is. Everything else - food, petrol, entertainment - seems to cost about the same as in NZ. But it's worth noting that salaries are much higher in Australia, so the overall proportion of salary people spend on food etc here is lower.
Of the friends me and and girlfriend visited, all of them have had 20k+ pay rises for moving horizontally (ie same role but in Aus). One moved vertically and is on more than twice what they earned in NZ (from 70k NZD to 160k AUD). Even they said they are being underpaid compared to their Aus counterparts in the same role.
There was a teacher protest here in Sydney the other day. They were protesting better pay on the basis that teachers were severely underpaid relative to other workers in the economy. While I was waiting for a show at the Opera House to start, I googled the average pay of teachers in New South Wales. Entry level teachers earn 75k (minimum rate set by government). Experienced teachers earn 120k+.
I have been amazed by my visit here. Me and my girlfriend came to visit friends, but we are both now seriously considering jumping the ditch. I'd always heard that salaried were better in Aus, but I guess I never really thought about it too much. But why not make the jump? Better salary, bigger city, something new, cheaper house prices... I honestly think we will do it in the next few months.
You should definitely do it. I did a horizontal work shift to Sydney and got paid nearly double in low level finance job. My savings rate tripled compared to when I was in Wellington and I wasn't even being that tight. It's also got great weather and more going on than any of the large NZ cities.
Im sure they'll be enjoying the sense of pride and intrinsic value of homeownership that p8 is always spooning on about, even if theyre underwater on their loan.
The 2nd line of your comment (tightrope etc) is very eloquently put. I was wanting to write something similar about the RBNZ's ridiculous 5% to 20% "forecast" yesterday, but could not find the right words.
In any case, it's looking like this really could be "the big one". Time will tell.
The theory of the property bulls is that by dropping interest rates later this year or early 2023, the RBNZ will be able to save house prices.
But the problem is, is that if house price drops have already gained too much momentum by then and it becomes the popular narrative, then falling interest rates may do nothing to stop the bleeding. Why buy now if you know you can buy at a cheaper price in the future?
This is what happened in the US during the GFC. Interest rates were going down, but buyers weren't prepared to buy now because they knew they could wait and buy cheaper in the future. Its the complete opposite of the FOMO mania that has hijacked rational thought in this country the last 15 years or so.
Notice how people's predictions of house price declines far exceed real world reality.
The DGM live in a land of widespread fantasy.
TTP
We're already in fantasy land TTP - with people thinking we can create prosperity by selling million dollar homes to one another.
TTP maybe you should buy some property on fantasy island (it’s a plane it’s a plane)
Notice how people's predictions of house price declines far exceed other peoples predictions.
The DGM live in a land of widespread predictions.
Genuinely unsure what to do with this information.
I would be shocked if we're not down 15% by December this year alone. Something tells me the Westpac economists will be revising their figures again in a few months.
You are probably correct User123 but it will be even worse for entry level badly maintained homes. They are pouring on the market and many of those who are trying to buy them are struggling to get the finance. Near news homes are still highly sought after where I live.
Which reminds me, I need to give the house a wash this weekend.
... you must have the mother of all freaking big sinks or bath tubs ...
This reads as a good news headline to prop up the housing ponzi,
Banks should not be speculating on house prices, it would seem that Westpac are trying to put a floor under the fall in prices; 15% will not bring affordability, but will save the banks from losses.
We all know we are heading for 30% or more declines.
Interest rates are to asset prices what gravity is to the apple.
This bit needs to be emphasized:
We should note that our forecast is based on the CoreLogic house price index, which is a quarterly average. A higher-frequency measure like the REINZ monthly house price index will see a larger peak-to-trough decline than this
Anyone noticing the absence of spruikers?
It's quite boring without them, as not everyone can spin as they do
Don't worry, they'll show up soon and tell you about the intrinsic value of a home and how you should think long term and that you don't lose any money unless you sell now.
Purposefully ignoring rising mortgage payments (in many cases by 50+%) dealing a massive damage to recent FHB's standard of living...
I'm loving the spin here with people talking like the crash has already happened. The Spruikers are probably just staying quiet so in 12 months time when prices start going up again they can say "I told you so". To be fair the serious DGM's on this site went into hibernation for 12 months while prices rocketed up by 30% and suddenly reappeared the second they thought they could smell their own farts and prices were falling.
You sound a bit agitated.
You sound like a wounded animal.. ready to pounce
I for one prefer the smell of my own farts to the smell of farts of others.
Carlos67 prefers the smell of Putin
Guilty as charged Carlos. I thought that the market was over priced in 2016 compared to the houses in the UK and local incomes. I was predicted falls, until 2020, when I started to question whether NZ was somehow different, I realised that I had been wrong for 4 years so it was time to stop predicting. I did however come out of hibernation in January 2022 when it became obvious that things were changing.
Don't fall into the trap of Taleb's Turkey. "consider a turkey that is fed everyday, every single feed firms up the bird's belief that it is the general rule of life to be fed everyday by friendly members of the human race looking out for its best interests. On the afternoon of the Wednesday before Thanksgiving, something unexpected will happen to the Turkey. It will incur a revision of belief".
In summary - you cannot predict the future based on past performance.
Carlos - it usually takes 3 months between a contract and the sale hitting statistics so current info is historic and all we have at present is anecdotal info. I strongly suspect house prices have peaked and are falling in some parts of NZ and only time will tell what the actual resultis and then in arrears. My pick is a reduction of 30-50% is not out the question as NZ is second highest price per capita for housing after Hong Kong.
I strongly suspect house prices have peaked and are falling in some parts of NZ
Lol, what gave it away? Was it the fact that the data show houses peaked on a national level last November and have been in decline since? Look at up-to-date data for goodness sake. The RBNZ FSR released a few days ago has a nice graph (using the good data, not the laggy stuff).
Perhaps you should change the shopping cart in this articles photo to a dustbin!
Homes.co.nz has the house we rent (Wellington) down $120k in the past few weeks. And down by $180k since peak.
That’s already around 15% down in a couple of months, and most of that was in the past 14 days.
Lol - and the stock market hasn't even crashed yet, so if there is pain ahead...we haven't even scratched the surface yet.
IO - you spoke to soon check out the Nasdaq and wall st.
Yes but only down 5% last night and only down 10-20% from peak (in US)…if SP500/NASDAQ are down 50% in 1-2 months time…then things start getting interesting.
For my properties in Auckland Homes.co.nz estimates seem to be on the rather high side.
Why does anyone care what homes.co.nz shows? Surely people are aware now how manipulated it is by RE agents and the likes...
Presumably agents aren’t manipulating prices lower.
And buyers were using it to gauge offer prices, manipulated or not, during the covid sugar rush.
They actually are so they can make sales... lower prices on homes.co.nz creates more interested in the property. If it's too high, people automatically write off the property.
Sounds like a self fulfilling prophecy.
I was just curious to see if homes.co.nz had lowered the estimates for me like they had for northman46. They still look too high as far as i can tell.
In Wellington it is well and truly not stonks all round on Homes. Some by 100k over the last two weeks.
Grain of salt where it's due, homes estimates leave a little to the imagination. Not sure of the algorithm, however notice the term "Median Homes Estimate", that is likely to be the median of averages, as the average is the highest providing value for a series of data. So for houses on the lower end, the prices shown will be a median value of similar averages from homes sold two months ago. A little misleading on the current trend 📉
I’m a Wellingtonian. Purchased a beautiful old villa (in very bad shape) during the lull of 2019 and below RV. Have spent $300k on renovations (plus done heaps of the work myself) and we have made an old house as thermally efficient as it can be.
Did we delight when the “ on paper” value of our home skyrocketed? NOPE. After years of renting with a young family and having landlords move us to take profits without any concern for our wellbeing, or our kids stability, when so many of our friends had to move further out, or even leave for overseas….we will be absolutely delighted if house prices fall to within the reach of the average family so that fewer families have to endure what we did.
I have no interest in being equity rich if society is poorer. A society where so many people feel they have no stake in their future. Where people cannot get ahead even with all the effort in the world. Where they are laden with debt at levels no economic assessment would ever suggest is sustainable, safe or healthy. Does that make me a DGM? NOPE. Does it making me a raving leftist? NOPE. I am none of those things and reject such intellectually lazy labels.
I just rather like NZ, hope that one day, my grandkids will be local. That nurses and teachers can buy houses. That we don’t end up in some debt feudal wasteland. Colour me old fashioned for thinking NZ has a cultural investment in something approaching fairness.
I love owning a home. I love that my kids won’t be moved schools AGAIN because of the mercenary whims of a landlord. I would wish a stable home for every family in NZ. Blows my frickin mind that such a notion is labelled “DGM”.
Comment of the year. Thanks Ginger :)
100% agree Ginger (thumbs up!)
I am tired IO, tired of the misrepresentation and mocking I get from a very small number of commenters.
But more critically, tired, saddened and frankly disgusted at the pathologically self interested mind-sets that seem to pervade a very significant proportion of this country’s population, and which comes through in a few of the regular commenters here.
it really worries me in terms of this country’s future.
Great read and I feel you have done a superb job of distilling the feelings of many posters on this site.
Too many people have forgotten that homes are primarily a place to live, raise a family and feel a part of your local community. The mentality that it is ok to deny other people these opportunities just so that make some tax free capital gains (while contributing no real work or effort ) has become disturbingly commonplace.
7 Houses Luxon intends to roll back all of the changes made by Labour and get the market pumping again. Look at what is happening in the UK after people believed that the Conservatives had their best interests at heart, it has been a disaster, they are being told to wear another sweater if they are cold and the elderly are riding buses all day to keep warm, Johnson then tried to get credit for giving them free transport! The wealthy will never understand the life of the average person. Yet National are now ahead in the polls. The poor are too knackered and despondent to vote.
Respect, Gingerninja. Wishing you many happy years in your villa with your beloved family.
Well said - heartwarming to hear this expressed so eloquently.
My property is actually to low on Homes.co.nz now after it took a dive in Feb due to the new RV, you know the RV that everyone says has nothing to do with your actual house price. I have the actual sale on two properties on my street recently and both are not as good as mine. The problem is that there are others on my street for just a little more and there appears to be a very sharp cutoff at $1.1million and it just sits there. If you up at $1.2 to $1.5 down here your really in trouble moving it at present.
Not necessarily, Zachary.
High-end properties in Auckland are registering record prices right now.
TTP
Please no one forget how comically bad Westpacs predictions have been...
I reckon 30% drop by the end of the year. I'm already strapped in and braced for impact. We have to get back on terra firma even if it means a rough landing.
Such a doom goblin Zachary Smith...you've changed...
I know right? But the shocking rise in house prices since the beginning of the pandemic defies all reason. I was always an advocate of a steady and slow rise in house prices. It's like we had 5-10 years price inflation in one year. Why that didn't ring massive alarm bells in parliament sooner is a concern.
We still have an opportunity to land this thing with a few survivors.
You are not the same since your soul mate DGZ departed...
Next week it will 30% drop month after 35% eventually 50% drop. Around 40% of people on here have already predicted these drops months before Westpac chief economist.
They don't have a clue just guessing.
Sure people were not guessing it was obvious once rates were dropped to emergency level FOMO would take over and now rates are coming off emergency level with inflation added all gains and more will disappear not rocket science fairlyfrank
They expect prices to fall 10% this year followed by another 5% decline in 2023
House prices will drop more in 2023 than in 2022, mark my words.
Welcome to Doomgoblinville.
My comment has nothing to do with DGM, rather just a bit of financial commonsense. If you ask I may share with you why the drop in 2023 will be higher than in 2022. (I could have also said the 2022 drop won't be as high as many think but houses will drop in value more in 2023)
Don't worry, everyone will simply cut down trees and add another 1 million value onto their property...
I doubt everyone has a hidden million dollar view onto the Waitemata Harbour
No hidden million dollar view for me, the view is so good they must have deposited $200K into my bank account and given me the $800K house for free without me knowing it.
... for some of us , the popping of the housing ponzi scheme is the polar opposite of doom & gloom ... its rainbows & sunrises ... a golden era where houses get back into the hands of friends & families ... where the speculators have left the scene , and commonsense abounds : Joy !
GBH, I'm somewhat disappointed that you too, seem to naively believe that lower house prices will lead to more home ownership. It's a bit more complex than this, to start off, ask yourself why house prices are going to drop in the first place...
Yes ... done that , arsked meself why house prices are gonna drop more in the first place ... ummmm .... not feeling disappointed ... meebee I misread the question .... ahhhhhh.... darn ... I do prefer multiple choice .... Kate's onto it ! ... blame her , sir ...
One hand up for your reasoning here (perhaps more coming off fixed terms and facing nasty increases?).
Hi Befuddled, here you go:
Interest rate rises will of course take a significant chunk of money out of the monthly budget, but unlike what most believe, this will not lead to heavy losses in house prices. What people do when money gets tight, they stop spending on restaurants, bars, clothes, household items, new phones, you name it but they won't default on their mortgages. That's the situation in 2022.
The side effect of the hefty interest rate rises, is that many business are going to go bust as a result of people tightening their belts, this of course means people lose their jobs. Now that's a much more serious problem, you cannot service a mortgage when you have no income, that's when the bank comes to knock on your door… That's 2023, proper recession time
PS, that's also the reason why the lovely idea that "houses will be cheaper, therefore more people will own a house" is going to be so, so wrong.
Mark these words as well.
Good points. So really the effects of a recession and more expensive credit will take a while to be felt, and the second order effects are likely to be worse - businesses letting people go, this causing mortgage distress etc. I believe the economy will be relatively bouyant for a time to come yet, until everyone tightens their belts and that is unlikely to be until next year.
'I believe the economy will be relatively buoyant for a time to come yet, until everyone tightens their belts and that is unlikely to be until next year.'
I generally agree, although I think the economic slump will start late this year. Remember how many people are re-mortgaging this year.
So, no heavy losses in 2022 Yvil. So what sort of losses in 2022?
And what sort of losses in 2023?
Can you put some %, or % ranges?
I think the losses will be similar across both calendar years. The worst half year will be first half of 2023, but by mid 2023 the RBNZ will be cutting the OCR again to try and resuscitate the economy and housing market. So the falls in the second half of 2023 will be smaller.
Sorry I don't think anyone can predict precise figures
Doesn't stop economists does it!
But I agree. A precise number is a mug's game, which economists shouldn't fall into.
I suggested to you providing a range.
Late last year I gave two scenarios for house price movements in 2022, in ranges:
Most likely 5-10%
Second most likely 10-20%
So not even prepared to provide ranges Yvil?
Wait so you're saying that interest rate increases will take a big chunk of money out of people's budgets, but banks will continue to lend the same dollar amounts on new lending despite rising interest rates? That's a bold claim.
Do this year's FHB earn considerably more than last years?
12 months ago I had a 5 year fix for 3.05%. 5 months ago I traded up into a 4.95%. That alone is $500 per month on $500k. And the 2 year rates are now higher than 4.95%.
I think he’s underestimating the impact of rising interest rates on demand for housing. I think he’s generally right that the numbers of people that are forced to sell will be moderate.
you're saying that interest rate increases will take a big chunk of money out of people's budgets, but banks will continue to lend the same dollar amounts on new lending
I never said at all, that banks will keep lending the same amounts on new lending, you totally made this up
But it's implied when you claim that people will take a big hit in servicing costs, yet there won't be any heavy losses in house prices, like these servicing costs won't have any impact on lending figures and house prices.
People generally buy houses with mortgage debt, and generally it's up to their maximum serviceability. Make that more expensive (the ANZ 2 year rate is 60% higher than the 5 year rate I had 12 months ago) and watch what happens.
Yvil - you are correct as far as you go but losing your job being unable to pay the mortgage leads to ----mortgagee sale and mortgagee sales lead to supply exceeding demand - and price is the elastic and then pink the elastic breaks.
Yvil - as night follows day - so higher interest rates follow recession which follows unemployment which follows less spending which follows smaller tax take - need I go on?
Higher interest rates do not follow recession, lower interest rates follow a recession to try to revive the economy. I estimate that by end of 2023 early 2024 interest rates will drop again
Last time, drops also appeared to accelerate, in gfc period ,here in Auckland,it felt like mania peaked 2006 ,but was steady selling still,on into 2008 ,then troughed through to early 2012.( My recollections only).
Even if we are going to have something similar ,and we are at the early 2008 equivalent now, there would be a 4 year period ,where underlying inflation balances up the nominal prices. However,due to RBNZ double pumping, we got a double peak, 2019/2020 then last years madness . So we pushed the top of the top ,even further.
It will not be as mild a correction overall ,as 2008 to 2012. Can't be ,really. Must be more exacerbated,and a longer period of underlying inflation ,not being expressed in the nominal price,before the catch up surge happens again.
Completely agree with all of this. I sold in January and sitting on the money. Talk of the govt sprucing the market for re-election is nonsense. They're not nearly powerful enough to do that and the RB is still independent last time I looked.
I've got fixed rates & a settlement date of late September. Totally relaxed that we can let that happen, continue to watch prices decrease and there will be a couple of years at the bottom. Renting is cheaper and your not losing equity.
Interest rates will come down at some stage and that's when you buy. We'll have a much better house than we had, with better schools and the equity is still intact with an upside bias - doesn't matter if that takes another year or two after, to happen.
When I sold in January and started lurking on these boards there was literally nobody predicting this. The time lag in this stuff is long and frankly it's because none of the economists or commentators spend any time actually on the street, seeing what's happening.
It's the Big Short all over again
Nobody predicting what, DDH?
The inevitable decline of the housing market. Our very own tulip event
For some reason people felt that a rickety home, that had no maintenance for 20 years, no flow, bare boards, a patch of grass for a garden in the likes of Kingsland was a minimum of $2,000,000 dollars. Completely bizarre. The Emperor had no clothes and nobody even noticed. (I mean some did, but they could be counted on one hand).
Plenty on this website were predicting it.
But I now see you mean in the MSM, economists etc.
The opportunity was there to sell and then buy better later on. It probably still is.
All markets rely on confidence so the msm was always going to keep to the script. The economists though were really surprising. It seems almost none actually go out and see what's going on so they're always a couple of months behind. A bit useless.
What a shambles the Bank Economists are. Hopeless!
Late 2021 I predicted a 5-10% drop across 2022 as my central scenario. With a second most likely scenario of 10-20% falls.
This was not rocket science.
So either they are:
- Incompetent;or
- Biased and deceptive; or
- Both
They are not allowed to scare the women, children or shareholders....... anyone else noticed the nasdaq, dow or S&P 500 already way way way down
Just another warning to mortgage holders who're on the edge. "We're going to gouge you and your mortgage to death".
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