House price decline of 15%20% expected

WELLINGTON: Annual house prices continue to track down with further falls of between 15% and 20% expected in the second half of this year.

Last month’s CoreLogic House Price Index showed residential property values fell 7.2% over the year earlier, which was the biggest 12month decline since 2009’s May drop of 7.9%.

However, CoreLogic chief property economist Kelvin Davidson said last month’s drop was smaller than the worst of the global financial crisis, when prices fell 9.7% in the year to March 2009.

Optimism seen in October and November evaporated following the Reserve Bank’s gloomy monetary policy statement in late November, which pointed to rising interest rates and a recession from the middle of this year, he said.

‘‘We’re not seeing any real evidence yet that home owners are looking to ramp up their selling activity — with unemployment still low, they can generally sit on the market for as long as it takes, or just delist,’’ Mr Davidson said.

‘‘But at the same time, buyers in a comfortable borrowing position still hold the balance of power when it comes to pricing, and this has clearly driven a further leg down for values in January.’’

House prices fell in all the major centres and regions, apart from Gisborne with an annual increase of 0.4%, New Plymouth at 2% and Queenstown at 8.3%.

It was a different story in Wellington with an annual price drop of 18.1%, while Auckland and Hamilton fell 8.2%, Dunedin down 10% and down 1%.

Mortgage rates were probably at or near their peak, with further increases in the Reserve Bank’s official cash rate (OCR), forecast to peak at 5.5%, already priced into current fixed mortgage rates, Mr Davidson said.

‘‘Floating rates will tend to track the official cash rate so they probably haven’t peaked. However, not many people borrow on floating rates,’’ he said, adding most people would borrow with fixed rates of one or two years.

Fixed mortgage rates were likely to remain above 7% as long as inflation remained high, with the RBNZ forecasting annual inflation to drop to 2% in the third quarter of 2025, he said.

‘‘So I wouldn’t be anticipating any marked falls in mortgage rates until into next year or perhaps even after that because

Christchurch [the RBNZ] really has to get inflation back in the bottle.’’

Fourth quarter annual inflation for the three months ended December was 7.2%, matching the third quarter.

It was too soon to tell whether the recent change of political leadership would have a material impact on house prices, with Prime Minister Chris Hipkins taking over from Jacinda Ardern and a general election to be held on October 14, he said.

‘‘No doubt some existing and wouldbe property investors will be hoping for a National victory and a followthrough on their promise to reverse Labour’s brightline and interest deductibility changes,’’ he said.

Loantovalue bank lending restrictions that required big deposits on mortgages, were a high hurdle to jump, he said. — RNZ