Kiwis in tears as New Zealand house prices plunge

New Zealand house prices are tanking.

Following 2.25% of rate hikes from the Reserve Bank, the REINZ House Price Index plummeted 5.4% over the June quarter, with every major urban district registering losses.

In a similar vein, June’s Trade Me property index posted a “record breaking” monthly fall of 1.9% amid “skyrocketing supply”.

The scale of decline has reduced many Kiwi vendors to tears, according to Harcourts real estate consultant Alison Hawkes:

Sales are plunging by double digits. Prices just fell the most in 13 years. And homes that would have previously sold in days are now sitting on the market for weeks…

“We have to tell vendors that the market has changed quite dramatically and quite quickly. It’s not always easy,” said Hawkes…

“There are a lot of tears. A few months ago they were tears of happiness, now they’re tears when they realize their family home isn’t worth what they thought it was.”

Meanwhile, Brad Olsen, principal economist at Infometrics, observed that sales volumes across New Zealand have plunged to levels not seen in more than a decade, which signals prices will continue to fall:

“If we look at sales volumes at the moment, we’re going back more than a decade to see sales volumes as low as they are now outside of Covid lockdowns… That is quite a significant shift.”

A year ago, New Zealand housing led the developed world in price growth, with values soaring around 40% over the pandemic:

Real house prices

New Zealand house prices experienced the strongest growth.

Now New Zealand’s housing market is considered the ‘canary in the coal mine’ for countries like Australia, given the Reserve Bank of New Zealand (RBNZ) was the first to hike interest rates.

A fortnight ago, the RBNZ stated that it would continue hiking interest rates aggressively in a bid to contain inflation, which hit a 32-year high 7.3% in the June quarter.

All of which means that New Zealand’s housing market will continue to plunge, inflicting more pain on the nation’s army of highly leveraged households.

After experiencing the developed world’s biggest boom over the pandemic, New Zealand’s housing market is now facing one of the biggest busts.

Unconventional Economist
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Comments

  1. And this is why the ALP, LNP, GRN and Teal Independents (the Pearl Necklace Clutchers) WILL NEVER CHALLENGE WILLINGLY the housing ponzi scheme in Aus, lest they suffer PM Ardern’s fate….

    • Ah yes, I can just see the headlines now ‘NZ’s best prime minister toppled by ‘ The potential (likely demise of the queen of progressives could only be down to black swans and timing!

      What a pity the Arden govt wont have the change to fail largely on its own account (like Morrison’s). On the plus side, hugs and headscarf’s aren’t going do to a lot for public sentiment on this one.

  2. Hill Billy 55MEMBER

    A bit of advice. It was never WORTH the price. Some may have been willing to have paid the price. They used fake or counterfeit dollars based on a debased monetary system. But those days are gone. We have borrowed from tomorrow. Tomorrow is here. It called the new normal.

  3. Hugh PavletichMEMBER

    Isn’t it a pity New Zealand has the worst housing bubble in the OECD according to Bloomberg (9.0 Median Multiple well above the affordable / normal 3.0) … while this is going on in China …

    China …

    An essential read … regrettably behind paywall …

    China’s Property Crisis Burns Middle Class Stuck With Huge Loans … Bloomberg

    https://www.bloomberg.com/news/articles/2022-07-24/china-s-property-crisis-burns-middle-class-stuck-with-huge-loans

    * Homeowners cut spending, postpone marriage, boycott mortgage
    * Housing market no longer seen as a sure bet as economy slows

    China’s deepening property bust is sending shock waves through the nation’s 400-million-strong middle class, upending the belief that real estate is a surefire way to build wealth.

    Now, as property developments stall across the country and house prices fall, many Chinese homeowners are slashing spending, postponing marriage and other life decisions, and, in a growing number of cases, withholding mortgage payments on unfinished homes.

    Peter, for one, has given up on starting his own business and buying a BMW 5 series after construction on his 2 million-yuan ($300,000) home in Zhengzhou, the capital of Henan province, was halted by China Aoyuan Group. He is now saddled with a mortgage that’s eating up 90% of his disposable income on a home he may never see.

    “I know every investment comes with a risk and you pay the price for your own choices,” Peter said, asking not to have his full name or any personal details used for fear of reprisal. “But homeowners aren’t the ones to blame and shouldn’t bear the consequences.”

    Peter is one of the hundreds of thousands of homebuyers in more than 90 cities across China to boycott a combined 2 trillion yuan in mortgages after firms such as Aoyuan and China Evergrande Group halted projects. A growing number of the nation’s middle class, which has an estimated 70% of its collective wealth tied up in housing, are joining the wildcat actions to refuse payment, posing a threat to the economy and social stability. … behind paywall … read more via hyperlink above …

    Most Chinese Property Junk Bonds Are Trading Below 35 Cents … By Ye Xie, Bloomberg Markets Live commentator and reporter … Zerohedge

    https://www.zerohedge.com/markets/most-chinese-property-junk-bonds-are-trading-below-35-cents

    Lei’s Real Talk … Youtube

    https://www.youtube.com/c/LeisRealTalk

  4. John Howards Bowling Coach

    It’s called tanking when it goes down more than a fraction of a percent, but when it is on the upside it’s underpinning the strength in the economy. It was a massive mistake for successive governments to allow the consumer confidence of Australia to be welded to house prices and cheer on speculation by design of the tax system. It was always going to be messy at the exit, we all knew that. The issue was the party went on so long that most of Australia started to believe in magic, that gravity didn’t actually exist. Yes I know it’s going to be a nasty recession and if I was smart enough I would have been heavily invested into property like most Australians my age, but I thought it was going to get messy long ago and exited the party. I missed a few free drinks, but perhaps I won’t get such a nasty hangover. I hope this doesn’t sink our nation, and that we actually work our way out of this soon to be very deep hole. Australia needs some hard times to give us the kick in the backside we need to wake up and actually work instead of thinking that Real Estate and Finance are actual industry, and that we can make an honest living from them, instead of developing and producing things of value to the world as selling Visas is not going to cut it in a global recession.

  5. Hugh PavletichMEMBER

    Former Reserve Bank governor Graeme Wheeler takes swing at central bank ‘hubris’ … Tom Pullar-Strecker … Stuff New Zealand

    https://www.stuff.co.nz/business/129375760/former-reserve-bank-governor-graeme-wheeler-takes-swing-at-central-bank-hubris

    Former Reserve Bank governor Graeme Wheeler has blasted the performance of the Reserve Bank, now led by Adrian Orr, and other central banks around the world during the Covid-19 pandemic.

    In an essay co-authored with New Zealand Initiative research fellow Bryce Wilkinson, Wheeler accused central banks of “errors of judgement” in overdoing interest rates cuts and their policies of quantitative easing, and said they should acknowledge their mistakes.

    Wheeler and Wilkinson said a persistent theme during the pandemic was “central bank hubris; a trust in policy frameworks, models, assumptions and their own professional competence that would eventually prove to be unwarranted”.

    Wheeler governed the Reserve Bank from 2012 to 2017, shortly prior to Orr’s appointment in 2018. … read more via hyperlink above …

    Covid response: Central banks made ‘grievous’ mistakes says former RBNZ Governor Graeme Wheeler … Liam Dann … New Zealand Herald

    https://www.nzherald.co.nz/business/covid-response-central-banks-made-grievous-mistakes-says-former-rbnz-governor-graeme-wheeler/BPJZAOGPDL4PU3U3OVCWHADJ3Q/

    … There were serious questions asked following the GFC … but how much has been learnt by the economics profession in particular since that time?

    Housing Bubbles & Market Sense … Hugh Pavletich … Scoop News (Jan 2009)

    https://www.scoop.co.nz/stories/BU0901/S00046.htm

    • Hugh PavletichMEMBER

      Central banks roasted for fuelling inflation … John Kohoe – Economics Editor … Australian Financial Review
      … behind paywall …

      https://www.afr.com/policy/economy/central-banks-roasted-for-fuelling-inflation-20220725-p5b4ei

      Central banks failed to control inflation and caused a risky house price boom because of their misplaced confidence and political distractions such as climate change, former Reserve Bank of New Zealand governor Graeme Wheeler says.

      In a scathing assessment of his former peers, Mr Wheeler said extremely stimulatory monetary policy in the COVID-19 pandemic contributed materially to the inflation … behind paywall … read more via hyperlink above …

  6. Jumping jack flash

    “Now New Zealand’s housing market is considered the ‘canary in the coal mine’ ”

    All housing markets will be the proverbial canaries because houses were used at the sluice to pour all the debt into the economy. When the flow stops, it is the sluice that it affects first.

    If you want to fill a bucket with water, you bail the water into the bucket using the biggest container that you can lift, is practical, etc, and the same principle applies with filling an economy with debt. If they wanted to fill an economy with debt then they use the biggest debt container they can, that most people can “lift” and is practical, etc.

    Debt is quite unnecessary in an economy that functions correctly and progressively adds effort and value to raw materials to sell the finished useful items to the world for profit.

    The bankers’ utopia however was an economy that depended 100% on debt and their constant creation and supply of debt to keep them necessary, give them total control over all with their interest rates, and of course keep them all filthy rich.

    Unfortunately as a result our economy has far too much capacity and there is far too much demand, far above what is actually necessary, and this excess demand for everything will need to be adjusted down, starting with houses as the debt flow stops.

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