Losses “snowball” across New Zealand’s housing market

According to the Real Estate Institute of New Zealand (REINZ), New Zealand house prices have fallen around 5% since November 2021, led by Auckland where prices are down 10%.

Westpac has also forecast a peak-to-trough decline in New Zealand home values of 15%, which would equate to a 25% real fall once inflation is taken into account.

Quotable Value (QV) yesterday released its latest figures, which showed that house prices are universally falling across both the top 25% and bottom 25% of the market:

Housing market volatility is the highest in 30 years and that is causing the market downturn to snowball as the weakness works its way up to higher-end properties…

“In my 30-plus years as a registered valuer, I have never seen anything quite like it before, and I am not sure if we have seen the worst of it, either. This residential property rollercoaster still has a way to go,” [QV] general manager David Nagel said….

“What we are seeing now is a growing number of main centres experiencing declining prices at both ends of the market. Those losses are starting to mount, month to month, up and down the property ladder.”

Price falls are likely to accelerate with Kiwibank economists tipping that mortgage rates will surge to between 6% and 7.5% – more than double what they were a year ago:

Mortgage rates are rising, and will rise further with expected RBNZ tightening. All mortgage rates on offer are likely to lift from the current levels of between 4.4% to 6.9%, to 6% to 7.5% over the coming year. More than 60% of outstanding mortgages are either floating, or rolling off fixed rates this year. The impact of the RBNZ’s tightening is being felt now and will continue to weigh on household budgets in the year ahead…

Come November, the housing market is likely to have experienced a 10% decline in prices.

A significant correction in New Zealand house prices is baked in. The question is whether it will morph into a full blown price crash, which will depend on the aggressiveness of the RBNZ’s monetary tightening.

Unconventional Economist

Comments

  1. This is what happens when the interest rates are pushed down so low, and “buying” a house looks better option than renting, and all you can afford was the rent. Now a whole generation of new buyers will either default or face years of paying money into a house they can’t borrow more against to fund all those important things: Jetskis, Jacuzzis and Holidays in Vanuatu. The rate being so low made houses more expensive, now it’s having the opposite effect, “wealth destruction”. So it was always a case of Caveat Emptor. Surely the banks should take some or all of the pain, they lent it out, surely they knew rates were going up eventually.

  2. What is a full blow house price crash?
    I know what a shelter price crash is, when a flood takes away the structure that provides shelter to your family.

  3. – The RBNZ is powerless. There will be a “severe correction” of the hosuing market in NZ. I fear it will be much more severe than many hope. No, I am NOT optimistic.
    – The RBNZ can do whatever it likes but it has inflated the amount of NZD by a dramatic amount (inflation) and that will inevitably lead to (momre) DEFLATION down the track.

  4. Hugh PavletichMEMBER

    New Zealand’s bursting housing bubble: Do consider also new supply consent status, disruptions … and widening consenting / approval gap with Australia …

    Christie at The BFD today only partially touches on the politically created problems surrounding plasterboard / gib board supply … and the widespread associated issues …

    The Great Building Bust … Christie … The BFD

    https://thebfd.co.nz/2022/05/24/the-great-building-bust/
    … h/t PH …

    Australia and New Zealand new dwelling approvals / consents adjusted for respective population bases … New Zealand outstrips Australia by wide margin of 78 % for the month of March 2022.

    For the month of March 2022 the Australian Bureau of Statistics reports 15,183 new dwelling approvals (x12 annualized 182,196) … Statistics New Zealand reports 5.303 (x12 annualized 63,636)

    The current population clock for Australia is 25.884 million … New Zealand 5.164 million.

    Specifically for the month of March … the consent rate per 1000 population per annum for Australia was 7.04 … New Zealand 12.52.

    For the month of March on aa appropriate population adjusted basis, New Zealand’s new dwelling consents / approvals were 78 % ahead of Australia’s …

    Building Approvals, Australia March 2022 … Australian Bureau of Statistics

    https://www.abs.gov.au/statistics/industry/building-and-construction/building-approvals-australia/mar-2022

    Building consents issued: March 2022 … Stats New Zealand

    https://www.stats.govt.nz/information-releases/building-consents-issued-march-2022

    … extract …

    … New dwellings consented per 1,000 residents

    The number of dwellings consented per 1,000 residents across New Zealand was 9.9 for the year ended March 2022, compared with 8.0 in the year ended March 2021. The record number of new homes consented per 1,000 residents was 13.4 in the year ended December 1973.

    National population estimates are updated quarterly, and subnational population estimates are updated annually in October and both are provisional. For more information about estimated resident population see Population.
    .
    .
    … Note historical ‘consents rate per 1000 population per annum’ graph from September 1971 below …

    Rise in new homes consented per 1,000 residents … Statistics New Zealand

    https://www.stats.govt.nz/news/rise-in-new-homes-consented-per-1000-residents

  5. Calling rates above 6% is no surprise. The 1 year fixed rate typically tracks the 1 year swap, with an average spread of 220bp over the past decade. If the 1Y swap realises its forward rate, then its rising to around 4%, and if that spread mean reverts, it takes the 1yr fixed rate to around 6.2%. Financial Markets have been pricing this outcome since early April.

    What we don’t know is how stable FHB and investor income statements will be in the face of this payment shock, which will intensify through year end. My chicken scratches suggest “not well” with most FHBs stretched to the limit (including borrowing for their deposit, mainly from friends and family) with their income heavily absorbed by fixed cashflows (tax, local rates, kiwisaver, insurance, mortgage payments) and much of the remainder of their incomes absorbed by spending on items that are very inflexible to adjust such as food, transport, clothing)…at 6% interest theyre running a deficit that they won’t be able to fund. Oh and 83% of them are termed out 30 years and/or on IO mortgages.

    By December, many will be insolvent, and some will also be falling delinquent.

    15% price decline? Yeah right

  6. Hugh PavletichMEMBER

    It is such a pity New Zealand has left itself so vulnerable with the worst housing bubble in the developed world at about a whopping 9.0 times annual household earnings … google search ‘Interest Co NZ Median Multiples’ … and too … ‘Demographia United States Housing Affordability 2021’ …

    Inflation Concerns Are Soaring Around The World … Zerohedge

    https://www.zerohedge.com/personal-finance/inflation-concerns-are-soaring-around-world

    US New Home Sales Collapse In April … Zerohedge

    https://www.zerohedge.com/personal-finance/us-new-home-sales-collapse-april

    Newsquawk US Early Morning: Global equities are falling on Tuesday amid risk-off trade; Fed Chair Powell ahead … Zerohedge

    https://www.zerohedge.com/markets/newsquawk-us-early-morning-global-equities-are-falling-tuesday-amid-risk-trade-fed-chair

    Truckload Spot-Rates Tank Fast Thanks To Soaring Fuel-Costs … Zerohedge

    https://www.zerohedge.com/markets/truckload-spot-rates-tank-fast-thanks-soaring-fuel-costs

  7. One trick ponyMEMBER

    Suspect the RBNZ’s tolerance for carnage has a higher upper limit than the RBA, plus there are other reasons why NZ is not a perfect preview for what may happen here. But they are clearly ahead of us in the tightening process and will be interesting to see how far they let this go.

  8. kiwikarynMEMBER

    A 15% price reduction will only unwind the price rises that occurred from Sept-Dec 2021. A 30% price reduction will only unwind 2021’s gains. You need a 50+% price reduction to just get back to early 2020 prices. 95% of home owners wont care if prices fall by 50% (I dont) as they all bought before mid 2020. Those that bought post 2020 just better pray that they can hang on to the house and don’t need to sell it..

  9. bleeterMEMBER

    Lol and yesterday snapchat fell 43% long live the certainty and stability of stocks lol!