Last week’s shock 0.5% interest rate hike by the Reserve Bank of New Zealand sent its official cash rate to 5.25%, which is the highest level in the developed world:
The aggressive rate hikes are almost certain to plunge New Zealand’s economy into a sharp recession.
The economy already contracted by 0.6% over the December quarter of 2022, which was worse than the Reserve Bank’s 0.7% GDP growth forecast and below what the majority of bank economists had projected.
The 1.0% of tightening since then (the Reserve Bank also hiked 0.5% in February) will ensure that household consumption contracts further, pulling the economy deeper into the red.
New Zealand’s housing market is also taking a hammering from the Reserve Bank’s aggressive tightening.
The Real Estate Institute of New Zealand’s House Price Index has crashed, down 17.6% nationally from its November 2021 peak, with Auckland down 22.4%:
Last week, CoreLogic released its House Price Index, which showed that the average value of New Zealand homes peaked at $1,043,261 in March 2022. By the end of March this year it had dropped to $933,770, losing $109,491 in value.
In the country’s largest property market, Auckland, average dwelling values were down $198,680 over the same period, whereas Wellington’s had plunged 282,227.
Auckland’s largest real estate agency, Barfoot & Thompson, recorded its lowest level of March property sales since the Global Financial Crisis in what is traditionally the busiest time of the year.
Just 765 residential property sales were recorded in March, down by 35% compared to March last year and down 59% compared to March 2021.
March prices were also down by $131,639 (-10.7%) compared to March last year, according to Barfoot & Thompson.
Westpac forecast that around half of New Zealand’s mortgage book will in 2023 reset from ultra-cheap pandemic fixed rate mortgages to rates that are at least double current levels.
In turn, there is the clear and present danger that the housing market will be swamped by large numbers of forced sales, which will drive prices even lower.
As it stands, New Zealand is facing a full blown housing crash. This comes after the pandemic delivered one of the world’s biggest price booms.
