The Reserve Bank (RBNZ) is now forecasting a peak to trough fall in house prices of about 20%, which is higher than its most recent forecast in August of a 15% fall.
In its latest (November) Monetary Policy Statement (MPS) the central bank says higher interest rates – in conjunction with low population growth, strong building activity and regulatory changes – have already contributed to a decline in house prices from their November 2021 peak.
The RBNZ came out with guns blazing on Wednesday as it hiked the Official Cash Rate by a record 75 basis points to 4.25%.
But although New Zealand house prices have now declined by about 11% since the November 2021 peak, household wealth in the June 2022 quarter was still 15% higher than at the end of 2020, the RBNZ says.
"The effect of the most recent reduction in household wealth on spending has also been outweighed by higher incomes so far. Although the outlook for residential construction has deteriorated due to falling house prices and higher interest rates, the number of new residential consents has yet to decline significantly, and forward order books for many construction firms remain full.
"Although the speed and extent of the decline is highly uncertain, house prices are assumed to continue to fall towards more sustainable levels over the coming year. The central projection assumes that house prices will decline by 20% in total from the November 2021 peak," the RBNZ says.
It says that higher interest rates, elevated construction costs and lower house prices are also expected to result in a decline in residential building from next year.
"Residential investment is assumed to remain elevated in the near term as builders work through the large pipeline of consented projects, before declining significantly as a share of the economy over the medium term," the RBNZ says.
"Lower house prices and higher interest rates are assumed to result in a sustained slowing in household spending, as households feel less wealthy and a greater portion of their income is directed towards servicing debt.
"Although household spending is currently supported by robust income growth, employment growth is expected to wane as higher interest rates contribute to lower overall spending and reduce businesses’ demand for workers. Consumption per capita is assumed to decline over coming years."
In its last set of forecasts in the August MPS the RBNZ had forecast that quarterly house prices drops would end after September of next year and with positive growth resuming in the December 2023 quarter.
But now it sees negative house price growth continuing through on a quarterly basis up to and including the March 2024 quarter. On that basis house prices will keep dropping all through next year and only start growing again in the June quarter of 2024.
The peak annual rates of projected falls have been increased as well. In the August MPS the RBNZ forecast a peak annual fall of 11.6%. However, it's now forecasting a peak annual rate of fall of 13.6% as of the end of the March 2023 quarter.
The RBNZ is not forecasting a return to annual house price growth until the September 2024 quarter.
The RBNZ had earlier indicated in May what would be required to bring house prices back to 'sustainable' levels but has more recently indicated that its definition of what a sustainable price is has subsequently now been reduced due to the higher mortgage interest rate costs now prevailing. IE house prices would need to fall by MORE than it earlier indicated.
It hasn't indicated in its current MPS what it would see as a sustainable level.
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I think we can safely say the RBNZ is well behind this curve as well. We must be pushing 20% peak to trough in the next few months and the pain hasn't even started to hit all those fixed rate resets coming up in 2023. This train is only getting started.
It's looking more and more likely that NZ is the new Ireland. 50% peak to trough, with shitty appartments more like 60%.
With house prices doing nothing but rising and there being competition to buy supplies a lot of the inflation in building products has simply been opportunism in the supply chain. Just look at the stated profit increase for the two parts of the cartel, or check out mainfrieght. There is a tremendous amount of fat to be trimmed from the chain.
huttman - thats a good point the shit falls further then the quality, quality newly built will fall the least.
Averages will hide the pain, manurewa shiteboxes may fall 50+ but new build only 20%, its like indivual stocks falling 50% but the index (be definition only the best stocks) only falls 25%
Many will be pulling the plug on new builds due to increases in costs and severe delays, I know of 2 personally who have done so who bought off the plans in Wellington 2020 and the developers haven't even got the sections started yet. Better to wait out the next 12months then jump back in and buy an actual house for peace of mind and less hassle.
RBNZ now sees bigger fall in house prices - 20% from peak to trough
Tell us something new.
20% Fall is the best scenario.
Haha. RBNZ change their mind with the weather.
Inflation is transitory, ocr will be low and stable for years, ocr will peak at 4, then 4.5 now 5.5 or whatever. But ok coz its all someone elses fault.
Dont even get me started on Grant.
Its kind of funny how people keep on listening to them expecting this time they will be right. Instead of doing their own homework. I esp cant believe FHBs are still buying in a falling market.
Expect house price falls of 50-60% from peak. No matter what the ocr does the rbnz will now have to break the system. More skilled young people will leave nz than will come here. Noone will buy houses for a while. Those forced to sell will do so at lower and lower prices
Expect infrastructure, health infrastructure to take a massive hit as people exit a falling market. And newly unemployed leave for oz Making it even harder to attract talent to keep things sorted.
Kiwi dollar will fall. Affecting inflation right when we need the ocr to drop.
Few more big dodgycoin companies and big global listed construction and other companies still to fail as they rely on cheap credit.. and a domino effect from those failures.
Solution to make good money.. is to export high value services and tech from nz... others who cant do that e.g. tradies and builders should pick a better country sell now and come back in 7-10 years.
Best deal done this year was by Orr. Netted himself $4m contract to fix something he broke.
it (the RBNZ) sees negative house price growth continuing through on a quarterly basis up to and including the March 2024 quarter
Using the RB's own figures of 11% drop in the last 11 months, and extrapolating a similar average fall until March 2024 (another 16 months) would add up, to a fall of 27% peak to trough. Their 20% fall figure is too conservative.
Land owned by households as a % of GDP at the end of 2021.
-Japan 130% (peaked at 325% in 1990)
-Australia 330%
-New Zealand 520%
With a major recession inbound and a hit to GDP, it's likely that the NZ property prices wont get back to their all time high's until the 2050's.
Yes those asking how far will things fall, the answer is what yiled is required to make property a YIELD based investment vs a cap gain investment. the OCR going to 5.5 would mean a 70% fall in prices, but any astute investor knows that the OCR will fall once recession bites and houses are selling 50% off peak, so then the ocr hurdle rate drops and perhaps investors return to the market.
Housing boom was a herd thing, like sharemarket in 1987, people took a long time to return, many Ma and Pa shareclub members never returned to buy individual shares again, prefering to let professionals manage there investments.
'Reserve Bank increases its projection of how far house prices will fall'.. Im not sure the RB should be projecting house prices at all...it didnt seem interested in doing so when they were going thru the clouds...Its hard to know what to make of some of whats going on... Hard not too think many folk have been lead down the garden path only to be slaughtered with rate hikes. The' we need to get inflation down' story starts to wear a bit thin with me, when it involves putting the heat on the workforce and squeezing the nuts of owner occupiers. Those FHB's that have paid premium prices to get into a home are not differentiated from the multiple owner/speculator and that is something that doesnt sit well with me. Hiking rates is pushing affordability out for these and many other aspiring FHB's . My concern is that greed is at play here and its targeting genuine owner occupiers locked into mortgage prison terms . The speculators will have more options than the occupiers. Renters will be feeling the heat come next review...my guess is they will be paying an 'inflated premium rent'... Long story short...Tell me we are not trying to bring down inflation by creating more inflation... Pushing past 4.25 with the OCR is asking for trouble and certainly will not make house prices more affordable for FHB's...current values would need to drop markedly , I dont think a 20% drop in RE values will cut it (affordability) .... Good luck finding jobs for those you throw to the wolves in the alleged name of lower inflation.... I suspect the banks/financiers will be breaking more profit records .... Hard to see inflation slowing when its not even given a chance to settle.... Is that a poverty wave I see in the next hike? Nice to think everyone on the lower income threshold is getting inflation adjusted wage rises...but I dont think they are...Those on the lower incomes that work hard and pay rent are even closer to living in a car/van down at the local park reserve... The regulators need to understand not everyone has 100k plus incomes... Lower income earners are most vulnerable .
To be honest , I have seen so many forecasts for house prices.... its like a software developement project, it will take twice as long and cost 3 times as much as you first get told. as a trend follower I would rather wait until the price action shows the super tanker has turned or at least stopped falling. i dont care where it is, but once it stops falling for 12 months it may be time to buy that Turangi fishing bach, and possible a palm beach holiday home
in any trend you want the knee to the shoulders..... this mantra that dumb people in leased Q7s spout about not timing the market is just BS to get a sale. Only an idiot trader would go long and never review the trade, hell you kiwisaver portfolio mgr does not do that. Thats not investment, its stupid blind faith.
OUCHY OUCH
Vendors slash house prices by up to $865k as selling gets tougher
Nila SweeneyReporter
Nov 23, 2022 – 3.51pm
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Sydney vendors are slashing their asking prices by more than $800,000 in some cases as selling becomes tougher in a falling market, listings data shows.
Some motivated sellers are even accepting offers that are hundreds of thousands of dollars below the prices they paid during the recent boom.
This three-bedroom house at 31 O’Donnell Street, North Bondi was listed for $6.7 million on November 4, which is $865,000 lower than the $7.565 million the vendor paid for in July last year.
Rich Harvey, chief executive of Sydney-based buyer’s agency Propertybuyer, said the level of discounting reflected the weakness in the housing market.
“If you look at the CoreLogic numbers, Sydney was down by 10.2 per cent since the recent peak, but the reality on the ground is that properties are being discounted by at least 20 per cent,” he said.
“So a deep discount is not necessarily underquoting just to get interest from buyers because the pricing strategy by some agents is more realistic now than a year ago when underquoting was rampant. We don’t see them often in this market.”
One of the properties on offer with a hefty discount from the original purchase price is the three-bedroom house on a 613 square metre block at 31 O’Donnell Street, North Bondi in Sydney’s eastern suburbs.
The house was listed with a guide of $6.7 million on November 4, which is $865,000 lower than the $7.565 million the vendor paid in July last year.
Another three-bedroom house, located at 53 Curlewis Street, Bondi Beach is also being offered at a sharp mark-down of between $450,000 and $650,000 from the original purchase price.
The property was bought for $3.05 million in May last year and is being offered for $2.4 million to $2.6 million.
This three-bedroom terrace at 77 Windsor Street, Paddington was sold for a $400,000 loss this October.
Jack Henderson, Sydney-based buyer’s agent and founder of Henderson Advocacy, said vendors were increasingly being compelled to sell at a discount as prices fell further.
“In this market, buyers are not naive, so they know that if someone is selling in today’s falling market, they’re selling for a reason, which typically means motivated vendors,” he said.
“So unless the property scores perfectly and has no issues at all, vendors are likely to struggle to sell and the longer a property sits on the market, the lower the price guide will need to drop from the original advertised price.”
Unrenovated properties ‘shunned’
Among those properties recently sold at a steep discount was a three-bedroom house terrace at 77 Windsor Street, Paddington in Sydney’s eastern suburbs.
The property was sold for $3.15 million on October 11, which was $400,000 less than the $3.55 million the vendor paid for in August last year.
A five-bedroom house at 22 Dobroyd Road, Balgowlah Heights on the northern beaches, which was advertised for $4.7 million, was reportedly sold for $4.65 million – a $350,000 markdown from the $5 million purchase price in August last year.
Vendors of the three-bedroom house at 88 Sturt Street in Kingsford in the eastern suburbs copped a $200,000 loss after selling the property for $2.3 million this June. The house was bought for $2.5 million in August last year.
“Some of these properties have some issues, such as they are near a busy road or their floor plans are not attractive, so they need to be discounted more to get sold,” Mr Henderson said.
Another house in the suburb, a three-bedroom house at 555 Anzac Parade, was reportedly sold for $1.88 million, which was $46,000 below the $1.926 million the vendor paid for in March last year.
This house at 88 Sturt Street, Kingsford was sold for $200,000 loss in June this year.
Amanda Gould, founder of HighSpec Properties, said unrenovated properties were particularly tough to sell amid the surging construction costs.
“Buyers are quite uneasy about renovating because of the high costs of materials and labour, so properties that need some work or require extensive renovations are being shunned at the moment,” she said.
Mr Harvey said although the level of distressed sales remained low, the numbers would likely spike by the middle of next year.
“I think there’s about a six- to nine-month lag effect on the rate rises flowing through the economy,” he said.
“I think that when people with large mortgages come off their 2 per cent fixed rates to 5 per cent mortgage rate next year, they’re going to feel the strain.”
New research from Roy Morgan shows an estimated 1.1 million mortgage holders, or more than one in four, are at risk of mortgage stress by January.
This is what happens when an asset class's principle value movement deriver changes from fundamentally perceived investment to actual value.
Persistent historically low interest rates drove people to believe 1) those rates were endless (stupid) 2) The continued rise in house prices made the asset class near bulletproof (more stupid due to more long term impact).
It was always a ponzi scheme in all but the fact that there were actual assets in hand (at ridiculously overstated and still increasing values) and that there were always non-investors forced to play in the same marketplace (the really criminal bit).
The proving factor was always in the percentage of average income it took to own a house. It was bad in many countries but NZ was ans is terrible. Here we are way off to the right on any measure:
https://data.oecd.org/price/housing-prices.htm
The investors that got out 100% won - but money doesn't come from nowhere unless you are the central bank so somebody else has to pay - 1) for those investor's profits, and then 2) for the market recorrection.
In the midst of that repayment/correction that same class of wtf "I just want a house" buyers are still all along for the ride.
RB's new forecast OCR to peak at 5.5 percent next September and stay there until 2024. So 2 years where mortgage variables will be higher than today on the interest side.
That forces huge pressure on the static cost side even BEFORE you consider how vastly overpriced houses were at the end of 2021.
People seem to forget the continued years and years of 7 to 11% price increases were all COMPOUNDING. So take away the investor impact and there is at least a 50% overstatement in most houses values.
That will be negated by demand and by the COL increase but still expect a total 40% drop over the next 3 years (made up of rapid drops over the next 18 months followed by more gradual ones over the following 18 months) as those interest rates take hold for anyone entering or moving house.
Add renovation and build costs at eye-watering levels and that will hold existing houses both down and up respectively, depending on condition of existing vs cost of build.
Best thing to do for first home buyers? IMHO - save like hell for 18 months - use the higher interest rates to maximise a deposit, use the time to watch the prices fall the highest percentage (per day) that they will, then stuff it all into the cheapest house you can afford and be happy to live in short term, on a fixed rate as long as possible that you can afford - with the knowledge that you may lose on the capital value of house one, but the next one will be cheaper than had you first bought it, and cheaper by so much that even though the interest rate will probably be a bit higher, you are still paying less overall (for many more years) due to the lower purchase price on the upgrade in 3-4 years.time.
I approve of your logic BUT
If they introduce DTI at reasonable levels at the bottom, there won't be much of a bounce, indeed the bounce will be tied to wage growth as long as they keep institutional investors out of the market. There will also be a considerable overhang of sellers willing to sell into any rally in 10 years time to get out flat (haha after inflation).
Thinking from purely a place to live you logic is very true. I can see a 40-50% fall, with exceptions that are even worse. I think many developement sites bought at the top are already down 35% but they are not yet being offered, once a few builders fall over these assets will be liquidated at whatever the bid is.
Really????
Just 20% from peak to trough?
That only accounts for the 2020-2022 Covid bubble!
What about the doubling (and doubling again) of prices over the last 10 years due to the engineered printing of money offered at near zero historical cost!
They laid the trap. Promoted the trap, and sucked the greedy in. Now they are starting the process of reclaiming that property (for the centralized good - or so they will eventually tell you).
Finally the majority of comments here are consistent with my views, i.e., they rightly predict a >50% post-peak property market correction, which will begin to align prices with long-term, empirically supported international metrics (e.g., price to income ratios).
Assuming that future governments adopt and implement sensible property market taxes and regulation, I then expect property prices to adhere to their long-run norm, i.e., nominal GDP ... (apologies to you pumpsters, but the earth's not flat and property prices don't "double every decade" :-)
I hate to burst your bubble, but after the required 7-10 years of no growth, those in charge will do everthing possible to once again pump up that bubble. Ireland - prices have doubled since 2013 Irish Home Prices, Graphed as Time-Series (globalpropertyguide.com)
Agree with the possible drawdown, but human history, and a glance at equity indexs over the last 100 years, tells us people love a boom so much they are prepared to risk a bust to get it. Imagine the yields if an average akl house is worth only 3-4 times average akl household income... do you really think rents will fall far here, its going to be a great investment at the bottom , with the prospect of capital growth a freeby ontop of cash flow positive yields.
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