Bearish banks forecast deeper New Zealand house price bust

New Zealand’s banks have turned even more bearish on house prices after the Reserve Bank of New Zealand (RBNZ) lifted the official cash rate (OCR) by 0.5% last week, and tipped further aggressive tightening.

In its latest New Zealand Property Focus report, ANZ now expects house prices to fall 11% this year reflecting the front-loaded OCR hikes:

We have since tweaked our OCR forecast to be slightly more front loaded. While we continue to expect it to peak at 3.5%, we have also centralised some of the downside risks we are seeing to our (still very uncertain) house price outlook.

We now expect house prices to fall 11% in 2022 (previously -10%), with a much soggier recovery thereafter…

ANZ house price forecast

The sharper decline in 2022 simply reflects changes to the interest rate outlook. But the soggier medium-term view is a result of revisiting our estimates of the fundamentals: housing supply vs demand. On that front, downward revisions to the net migration data (and therefore the resident population) have recalibrated our understanding of how quickly the residential construction industry is eroding the housing deficit…

NZ housing supply versus demand

ANZ’s forecast is similar to Westpac’s, which tips a 10% decline in national house prices this year followed by a further 5% fall in 2023.

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.

For its part, other major bank ASB has forecast that house prices would fall 20% from their peak in real inflation adjusted terms, which would represent the biggest price fall since the 1970s:

“The sheer speed with which mortgage rates have risen – amongst the fastest pace on record – will pose big headwinds for house prices over the second half of this year,” they said…

In total, they expected a 12% peak-to-trough decline… But when adjusted for inflation, it was about a 20% correction, the biggest drop since the 1970s.

Finally, Capital Economics has provided the most bearish assessment of them all, forecasting a 20% peak-to-trough decline in house prices by the end of 2023:

“Our forecasts for interest rates would be consistent with prices falling 15% y/y before long and keep falling until the around the end of 2023. (See Chart 1.)

“That suggests the downturn may result in a 20% fall in prices”…

Capital economics house price forecast

The magnitude of New Zealand’s house price bust will obviously depend on how aggressively the RBNZ hikes interest rates.

The RBNZ’s ‘forward track’ released with its Monetary Policy Statement showed the OCR at 2.7% by September of this year, 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023.

If the RBNZ hikes that aggressively, then Capital Economics’ forecast is likely to come into play, with New Zealand experiencing a genuine house price crash.

Unconventional Economist

Comments

  1. Nice of them to turn up, this was obvious back in December.

    Core inflationary pressure is about to collapse in the second half of this year and as it does, rate expectations will implode and the Kiwi will slump…

    • Jumping jack flash

      Deflation is coming, but the interest rates need to bite. [Nonproductive] debt spending is inherently deflationary.
      It is similar to a very sensitive control system. Let’s hope the central banks use a feather touch and not a power drive.

  2. – Nonsense. Shrrply falling house prices are already baked into the cake. Do combine 1) a rise of property prices of 40% to 50% in 2 years.2) interest rates back to where they were in late 2019 3) higher energy prices and it should become clear that the housing market in NZ is in deep deep trouble. I think prices will go down by at least ~ 30% and then property prices are back to what they were in late 2019. But I woulldn’t be surprised to see house prices to go down say 50% from the current level.

    • Willy, great common sense. Everyone else sees a crash, I see a reset back to the trend. 30% decrease gets us back, as you stated to 2019. Before the idiots thought the covid was going to kill us all.

      • – Based on current house prices and interest rates I expect house prices to down to – at least – late 2019 levels. Even when house prices only go down to late 2019 levels then A LOT OF people will get “under water” with their mortgage and things will “become ugly” for A LOT OF mortgage holders. One can debate whether or not this counts as a “crash”. It also depends on how fast the housing market(s) will “cool down”.
        – Throw higher energy prices on top and it’s clear that house prices will have to fall even more. They have to go down to levels lower than late 2019 levels. House prices could easily fall another 50%. And then we’re talking about drops of more than 60 to 70% from the current level. And that could be called “a crash”.
        – The story above applies to both Australia & New Zealand.

        – Am I (too) pessimistic ? Let me aswser that by reciting the following saying: “I hope I am wrong, but I fear I am right”. We just simply ahve to wait and see what expires in the next say 2 years. Only time will tell.

        • Not Pessimistic , just seeing the writing on the wall. Timing is the hard thing. Pessimistic is wishing ill health on yourself and others

  3. Hugh PavletichMEMBER

    A review of things you need to know before you go home on Wednesday; many retail rate rises, ‘advanced manufacturing’ is ‘in’, debt pressures rise, Penlink ok’d, swaps up again, NZD soft, & more … David Chaston … Interest Co NZ

    https://www.interest.co.nz/business/116179/review-things-you-need-know-you-go-home-wednesday-many-retail-rate-rises-advanced

    … extracts …

    … MORTGAGE RATE CHANGES

    Westpac has raised its floating home loan rate by +40 bps to a level that matches ANZ’s new rate. Unity Savings raised their fixed rates. Avanti Finance raise their floating rate by +50 bps. Bluestone also raised its rates. The Cooperative Bank raised its floating rate by +40 bps to 5.85% and its one year fixed rate by +20 bps to 4.49%.

    FEELING THE PINCH

    Credit reporting agency Centrix is noting that the ongoing inflationary challenges facing Kiwis continues to impact consumer confidence and credit demand, with consumer credit demand was down -9% year-on-year in May 2022, while the demand for new mortgages was down -27% over the same period. And for those successfully applying for mortgages, the lending value was down -38% in April 2022 as confidence falls. Consumer arrears were up +12% year-on-year in April 2022 in tandem with falling credit demand as Kiwis start to feel the financial pinch of rising living costs. … read more via hyperlink above …

  4. Hugh PavletichMEMBER

    New Zealand seismic and construction industry deficient skills risks … it’s the owners /occupiers and financiers / bankers who ‘wear it’ of course …

    … Windbag politicians, public servants and professionals are rarely … if ever … held to account …

    … Allowing affordable low density low and light construction on sound ground is essential …

    Pretty vacant: What’s wrong with Wellington’s buildings and are any safe? … Georgina Campbell … New Zealand Herald
    … behind paywall …

    https://www.nzherald.co.nz/nz/pretty-vacant-whats-wrong-with-wellingtons-buildings-and-are-any-safe/7TC7D772YTHWUVKIJEBMH3ENBQ/

    The reasons several Wellington office blocks have recently been vacated run deeper than the fact engineering is not an exact science.

    In the past month alone the main building at Hutt Hospital has been deemed earthquake-prone and more than 1,000 Ministry of Education staff are working from home after a seismic risk was discovered in their building.

    There is no single reason why these buildings and others have been vacated- it’s more complicated than that.

    Some aren’t even technically earthquake-prone, all of them can still legally be occupied, and others are subject to a confusing grey area in current legislation.

    Safety of staff is the absolute priority for companies and government departments, but safety is not an absolute thing….

    … concluding …

    … The trials and tribulations of managing the earthquake risk in Wellington is happening against the backdrop of the expectation the capital will experience a significant seismic event in our lifetime.

    For example, it’s estimated there will be 1800 deaths and 7600 injuries in the event the Wellington fault ruptures.

    It is the ultimate exercise in risk management.
    .
    .
    Alpine Fault Earthquake series: Landslides, flooding, liquefaction predicted … New Zealand Herald

    https://www.nzherald.co.nz/nz/alpine-fault-earthquake-series-landslides-flooding-liquefaction-predicted/J4OXZTFHDRYNTDXD2L3JBKYQGA/

    … Earlier Prime TV documentary …

    … Being aware too … of New Zealand’s long and sorry history of dense urban development failures …

    … A short (4.05 min) video introduction …

    A living hell … Short Introductory Video … John Hagen

    http://www.johnhagen.co.nz/video_pages/LivingHell.html

    … A Stuff NZ report at time of above documentary release April 2021 …

    ‘Living Hell: Apartment Disasters’ exposes Stonefields block, and calls on MBIE to get involved with wider problem … Colleen Hawkes … Stuff New Zealand

    https://www.stuff.co.nz/life-style/homed/latest/124788794/living-hell-apartment-disasters-exposes-stonefields-block-and-calls-on-mbie-to-get-involved-with-wider-problem

  5. Hugh PavletichMEMBER

    Barfoot & Thompson’s median selling price now 9.3% lower than November 2021 peak …

    Barfoot & Thompson’s sales at a 14-year low in May, stock levels at 11-year high for time of year … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116194/barfoot-thompsons-sales-14-year-low-may-stock-levels-11-year-high-time-year

    Average cost of building a home in main centres skyrockets 21% in past year, QV CostBuilder says … John Arthur … Stuff New Zealand

    https://www.stuff.co.nz/business/industries/128836825/average-cost-of-building-a-home-in-main-centres-skyrockets-21-in-past-year-qv-costbuilder-says