New Zealand house prices are crashing

The Reserve Bank of New Zealand (RBNZ) last week released its half-yearly Financial Stability Report (FSR), which noted that house prices nationally had already fallen more than 4% since November 2021 after having risen a whopping 48% over the prior two years:

New Zealand house price inflation

New Zealand house prices have fallen sharply since November.

The RBNZ also noted that New Zealand house prices “remain above sustainable levels despite recent declines”, and warned that “a sharp correction remains a plausible outcome that would have broad economic implications”.

Westpac’s latest Home Truths report is especially bearish, tipping a 10% fall in New Zealand house prices this year, followed by a further correction of 5% in 2023. With New Zealand inflation running so hot (nearly 6% annually), this would imply a peak-to-trough fall in real house prices of up to 25%:

House prices have been falling since the end of 2021, and at a fairly rapid pace compared to history (considering that any drop in prices at all is a rare occurrence). Higher mortgage rates, and in particular the sharp rise in fixed-term rates that began around September last year, are having the impact we expected on what buyers are willing to pay for a property…

By February, interest rate markets were also factoring in a peak OCR of around 3%; today, that implied peak is now substantially above 4%…

RBNZ official cash rate

As a result, mortgage rates have already risen beyond where we expected them to peak in this cycle… The two-year rates currently on offer are around 5.2%, and it’s likely that they have further to go in the near future…

New Zealand mortgage rates

Armed with our new mortgage rate assumptions, we find that our ‘fair value’ estimate of house prices is likely to fall even further below current prices than we previously thought…

We previously expected a 10% peak-to-trough fall in prices over this year and the next; we now expect a total drop of 15%. We’ve also front-loaded the fall, with a 10% drop in 2022 and a further 5% in 2023…

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.

The REINZ’s latest survey of licensed real estate agents was similarly bearish, noting that fewer people are attending open homes and auctions, with a record 60% of agents also reporting that prices are falling in their areas of operation:

New Zealand buyer sentiment

New Zealand buyer demand evaporates.

Agents are also reporting collapsing demand from investors and first home buyers, alongside a near complete disappearance of FOMO in the market.

In short, the New Zealand house price collapse has begun. How bad it gets will depend on how aggressively the RBNZ hikes interest rates.

Unconventional Economist


  1. Hugh PavletichMEMBER

    Australia and New Zealand new dwelling approvals / consents: Adjusted for respective population bases New Zealand outstrips Australia by wide margin of 78 % for 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 77.5% ahead of Australia’s …

    Building Approvals, Australia March 2022 … Australian Bureau of Statistics

    Building consents issued: March 2022 … Stats New Zealand

    … 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

  2. Hugh PavletichMEMBER

    New Zealand: Why do the NZ political / planning authorities run the urban land market like the Sri Lankan authorities run their used car market ? …

    … Get the land price wrong … then everything else is wrong …

    … When can we expect land supply restrictions to be lifted and infrastructure properly debt financed, so that housing affordability is restored to 3.0 times annual household incomes requiring sensible mortgage loads of about 2.5 times … as it was for previous generations ? …

    Sri Lankan Kiwi journalist Dileepa Fonseka opines today …

    Wealth inequality debate is really an argument over land … Dileepa Fonseka OPINION … Stuff New Zealand

    OPINION: Irish economist David McWilliams quipped recently that “it’s very, very easy to burn the house down, if you don’t own a house”.

    If you want to know why wealth inequality is back on the agenda, in a way that it wasn’t even during the financial crisis, you just have to look at the way the housing and land markets have been run.

    Housing has been run much like the secondhand car market in Sri Lanka.

    That country is currently going through the worst economic crisis in its history, foreign reserves have dried up, industries like tourism have been cut off at the knees, electricity is available only for one hour a day in some instances, and people are having to line up for hours to access food, water and milk powder.

    But despite the cut in incomes, second-hand cars are more valuable in US dollar terms than before the crisis.

    Agence France-Presse (AFP) reported the going rate for a 2017 Toyota Land Cruiser recently hit US$312,500 – nearly half a million New Zealand dollars – despite declining incomes.

    The reason? Alongside other longstanding restrictions and duties, the Government put a two-year ban on the importation of cars, slowing down the pipeline of new cars coming on to the market. … read more via hyperlink above …
    Expect aspirational and desperate Kiwis to flee to Australia and elsewhere in droves … for more affordable housing, lower cost of living and higher incomes …

    London calling: Inside the fight to halt the exodus of Kiwi workers … Jane Phare … New Zealand Herald
    … behind paywall …

    Nothing’s going to stop thousands of cooped-up young Kiwis from heading off now the borders are open but their departure can only exacerbate critical shortages of skilled workers. In the first of a five-part series, Jane Phare looks at what employers are doing to retain skilled workers, and what part the Government will play in terms of immigration.

    Newly trained occupational therapist Jenelle Thomson doesn’t hesitate when asked why she left New Zealand in February to take up a job in Brisbane.

    “It was the money,” she says. That and the cost of living in New Zealand, and the possibility of buying a house in Queensland much more easily than in Auckland. Thomson, 25, hasn’t looked back since heading across the Ditch. She left behind the prospect of a job as an occupational therapist earning $55,000 a year at Middlemore Hospital after graduating from AUT.

    In Brisbane she started on $76,340 in a private practice. If Thomson transfers to clinical work in a hospital, she is likely to earn more than $100,000. Her Kiwi partner, a civil engineer, is earning $30,000 a year more than his previous job in Auckland.

    Their weekly grocery bill is $140 for themselves, and includes cooking two meals a week for two flat mates, compared to more than $200 a week in New Zealand. The couple are saving to buy a house about half an hour out of the city for $545,000. … behind paywall … read more via hyperlink above …
    The latest poll speaks for itself. The government is in trouble …

    Newshub-Reid Research poll: Labour suffers dramatic fall as National cracks 40 pct … Newshub

    • Maybe a little more life left in the Aussie housing markets outside of Sydney and Melbourne…..

      NZ appears to be a wonderful spot if you have money and the middle earth views it buys, but outside of that why not jump over the ditch?

      • Narapoia451MEMBER

        The real estate delusion is all powerful in NZ, so many people (Boomers primarily and gen X a bit) have made so much unearned money from speculation and it’s warped their whole way of thinking, as well as those that missed out. The end result is that the country has eaten it’s young – much like Australia only to a greater extent.

        There will be a lot of people leaving the country, and there will be a lot of people that bought into the recent insanity that take a lot of pain. The specufestors I hope get rinsed but a significant proportion will understand that the music is stopping and the lights are on and will bail – others are so bought into the RE religion that they will wear it. Australia and NZ have poisoned their own futures with their housing bubbles.

    • Hugh PavletichMEMBER

      Australian supermarket prices prove Kiwi shoppers are getting a raw deal … Mike Yardley OPINION … Stuff NZ

      Mike Yardley is a Christchurch-based writer on current affairs and travel, who has written a column for Stuff for 15 years.

      OPINION: While spending the past week in Australia, I took the opportunity to trawl the aisles of Coles, Aldi and Woolworths supermarkets, which vividly reaffirmed how much more expensive the weekly grocery shop is in New Zealand.

      Across a sweep of weekly essentials and pantry staples, supermarket prices seem to average around 10-15% cheaper in Aussie supermarkets.

      There are the obvious reasons that help explain away the glaring price disparities, including greater competition, economies of scale and the higher freight costs entailed in servicing a long and narrow nation like New Zealand. … read more via hyperlink above …

  3. Prices need to fall 50%… even then the price to income ratio won’t be back to average, although rental yields eilk be attractive once again.

      • 5% fall so far, and thats in nominal terms. Inflation has added another 3% to it so in real terms its down 8% since November, and at this stage, sellers are still unwilling to cross-the spread, hence the very low auction clearance rates. But we are seeing weakness in sales leading to a build-up in inventory, and a lengthening in days to sell, which historically have been highly correlated to weakness in prices.

        There’s a lot of pain still to come via mortgage fixings, and first home buyers – the marginal players in the market (along with investors) – are in a terrible bind. Ive attempted to model the income statement of a representative first home buyer who purchased in 2021 to see if they can cope, or if they can restructure and the bottom line is they are toast. If the one year forward one year swap is realised – pushing the one year swap up to 4.4% – and the spread of the one year fixed mortgage rate rises to its past decade average of 220bp, then we are going to see 1yr fixed mortgage rates rise to around 6.6%. As almost all FHB’s have 30-year term mortgages (83% do), many are on interest only, many have borrowed from friends and family and have an LVR>80% even with that mezzanine financing, and many have DTI>6x with debt servicing eating 50% or more of their after tax income, there is absolutely no hope for them… they are doomed. And they are the marginal buyer.

        So dont be too hasty. We don’t know how bad things can get, but it could get pretty rotten.

          • No. Sydney and Melbourne have some similarities but some important differences too. NZ didn’t implement the Royal Commission findings on income and expenditure verification to the same extent that Australia did, until the CCCFA was tightened in December 2021, and so that’s biting. It’s also had a sharper increase in interest rates and a deeper payment shock, valuations in Auckland are very stretched even compared to Melbourne and Sydney, and NZ economy looks much more exposed than Australia. I’ve not done detailed work on Australia and the Aussie housing market is more regional and complex than New Zealand’s but I’ve done plenty on NZ and it’s not looking good at all.

  4. reusachtigeMEMBER

    LOLOLOL what a load of fear mongering hype. Slight negative sideways movement at worst. Just part of the normal housing cycle before the next 50% boom over two years.

  5. Hugh PavletichMEMBER

    New Zealand …

    Average dwelling value in Auckland down $48,000 since the start of 2022, average value in Queenstown-Lakes up $50,000 … Greg Ninness … Interest Co NZ

    First-home buyer purchases fall to 2014 levels … Miriam Bell … Stuff NZ

    Reports suggest first-home buyers still suffering despite value of average NZ house falling by over 2 percent … Newshub

Leave a reply

You must be logged in to post a comment. Log in now