Interest rate torpedo sinks New Zealand housing market

Aggressive interest rate hikes by the Reserve Bank of New Zealand (RBNZ) continues to hammer the housing market, with vendors slashing prices across the country:

The prices on almost 5000 listings have been slashed in the past three months as more owners get realistic about their property’s worth in the current market…

Almost five times more real estate listings have had their price altered by an average 3.95% in the three months ending May 31, 2022 compared to the same period last year.

Real estate agents made changes to 15% of all residential listings on OneRoof during the same three-month period with almost 50% of those corrections relating to Auckland properties, OneRoof analysis shows…

“A lot of the time what people are doing is they are dropping the price and they are dropping it below where the market is and they are leaving money on the table for their owners” [Wallace Stratton agent Stefan Powney said]…

The vendor price cuts come as average values across New Zealand fell another 1.0% in May, according to Quotable Value (QV):

Average values in May were lower than they were in April in all of them except one…

The average value of all homes throughout the country was $1,030,221 in May, down $10,706 since April and down $33,544 since January…

The biggest declines since the start of this year were in Auckland -$71,543, followed by Wellington Region -$64,849 and Palmerston North -$46,655 (see the table below for the trends in all major centres since the start of the year).

“There’s no question that prices are falling, especially now as buyers take the upper hand in negotiations,” QV General Manager David Nagel said.

“It’s really just a matter of how much further values will fall before finding the new equilibrium…

“With interest rates likely to climb further to battle inflationary pressures, as well as economic uncertainty with the Ukraine conflict and continuing supply chain disruptions, we’ve still got a way to go before the market bottoms out,” Nagel said.

New Zealand house price

The RBNZ’s ‘forward track’ guidance has the official cash rate (OCR) hitting 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023. If true, this would nearly double the OCR from its current level of 2.0%.

In turn, the RBNZ has forecast that that average mortgage rates will soar to around 6% in 2023, which would be more than double their pandemic low:

RBNZ projected mortgage rates

Kiwi borrowers that stretched themselves to enter the housing market last year at rock bottom rates, therefore, face a nightmarish mortgage reset ‘shock’ once their fixed loan terms expire.

A significant house price correction looks ‘baked in’ for New Zealand. Whether it turns into a full blown price crash will depend on whether the RBNZ follows through with its ‘forward track’ guidance.

Unconventional Economist

Comments

    • It’s not that they are trying to help, it’s that they have no choice, skyrocketing inflation is hitting affordability, this morning a manufacturing companies staff went on strike saying they need a 15% increase because they can’t even afford to live and pay rent now. With a estimated 50k-125k of people to leave NZ, mostly will be skilled workers going to oz I think this will please incredible preasure on wages and I don’t see how the RBNZ is going to get out of this death spiral. I think property is now in a no win position and will crash for sure. I read yesterday in NZ media a watermelon was selling for $100 NZ dollars.

  1. pfh007.comMEMBER

    “..Kiwi borrowers that stretched themselves to enter the housing market last year at rock bottom rates, therefore, face a nightmarish mortgage reset ‘shock’ once their fixed loan terms expire…”

    In other world news

    Man who swims with chop tied to ankle is chased by sharks

    • Exactly. The punters need to try to better educate themselves how things work instead of being victims. Harsh but true.

  2. Hugh PavletichMEMBER

    United States … Stocks sink after inflation soars by most since 1981 to 8.6% yoy …

    Stock market news live updates: Stocks sink after inflation soars by most since 1981 … Emily McCormick … Yahoo Finance

    https://finance.yahoo.com/news/stock-market-news-live-updates-june-10-2022-111928913.html

    https://finance.yahoo.com/

    U.S. stocks sank Friday as investors digested two downbeat prints on the U.S. economy.

    May data on inflation showed price increases unexpectedly accelerated last month, with consumer prices rising 8.6% year-over-year in May, the most since 1981. Consumer sentiment data released Friday morning came in at a record low, as inflation weighs on American households. … read more via hyperlink above …

    A Shocked Wall Street Reacts To Today’s “Scary” CPI Print … Zerohedge

    https://www.zerohedge.com/markets/shocked-wall-street-reacts-todays-scorching-cpi-print

    “The Fed Now Has Good Reason To Surprise Markets”: Barclays Is First Bank To Call For 75bps Next Week … Zerohedge

    https://www.zerohedge.com/markets/fed-now-has-good-reason-surprise-markets-barclays-first-bank-call-75bps-next-week

  3. Hugh PavletichMEMBER

    Interest Co NZ Morning Briefing …

    American CPI surprises on the high side; Canada jobs expand; China CPI unchanged and low; India factories busy; Aussie power system faces stress; UST 10yr 3.16%; gold up and oil down; NZ$1 = 63.6 USc; TWI-5 = 71.3 … David Chaston … Interest Co NZ

    https://www.interest.co.nz/business/116303/american-coi-surprises-high-side-canada-jobs-expand-china-cpi-unchanged-and-low
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    .
    Fewer properties offered at Barfoot & Thompson’s latest auctions but the sales rate’s almost unchanged …

    Overall sales rate of 19% at Barfoot & Thompson’s latest auctions … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116302/overall-sales-rate-19-barfoot-thompsons-latest-auctions