New Zealand’s housing correction begins

Earlier this month, I tipped that New Zealand’s housing market was poised for a correction after experiencing record breaking growth of 27.6% 2021, according to CoreLogic:

Today, the REINZ released its house price index for December, which recorded a 1.6% monthly decline; although prices were still up 21.5% over the calendar year:

The next table shows the price movements across sub-markets:

Whereas sales volumes were down sharply across almost every jurisdiction:

Commenting on the results, REINZ CEO Jen Baird noted that headwinds are building:

We are noting signs of deceleration in annual price growth compared to previous months. While the market remains confident, the impact of rising interest rates, tighter lending criteria and changes to investor taxation restrictions are starting to shift dynamics.

“In particular, the amendment to the Credit Contract and Consumer Finance Act (CCCFA) on 1 December 2021 — which requires stricter scrutiny of borrowers’ financial health — seems to have had an immediate effect. Feedback from several regions notes a falloff in buyer numbers — particularly first-time buyers — as a result.

“Over 2022, the impact of these changes and anticipation of further interest rate increases are likely to play out in the market, leading to a gradual slowdown in the pace of price growth”.

Mortgage demand fell sharply in the final quarter of 2021, according to credit reporting company Equifax, which would typically portend falling prices:

In response, the Ardern Government is reviewing the new banking regulations amid concerns that lenders are applying the rules so rigorously that many people are being shut out of the housing market (see yesterday’s post).

Given last year’s record price growth, which has driven valuations to record levels, it seems inevitable that a correction will manifest in 2022, especially given recent cash rate rises, investor tax reforms and macro-prudential property curbs.

Unconventional Economist
Latest posts by Unconventional Economist (see all)

Comments are hidden for Membership Subscribers only.