Housing market loses $40 billion
New Zealand’s housing market lost $40 billion of value over the first half of this year, data from Corelogic shows.
It has released its latest Property Market and Economic Update, which says the total value of Aotearoa’s residential real estate was $1.69 trillion at the end of the second quarter of this year, down from $1.73 trillion at the end of 2021.
The average residential property value is now $1.018 million.
There were mortgages secured against 20% of that value.
Corelogic chief property economist Kelvin Davidson said sharply rising interest rates and homeowners refinancing existing mortgages would ‘‘test’’ the market over the rest of this year.
‘‘There are multiple reasons contributing to a slowdown in values; these include more listings, a shift in pricing power towards buyers, a tighter mortgage lending environment, and sharply higher interest rates,’’ Davidson said.
‘‘This weaker phase for the property market looks set to continue into 2023, and even when the floor is reached, the experience of the Global Financial Crisis (GFC) was that it took another two to three years for the next upswing to start as values plateau.’’
He said a significant drop in sales volumes had given time for the stock of available listings to be replenished, and had put the power in the hands of buyers.
‘‘As yet there hasn’t been an abnormally large rise in new listings flows, but this is certainly a risk we’re keeping an eye on as financing costs continue to increase and the returns on other assets rise too,’’ Davidson said.
‘‘The sharp post-Covid upswing in values has now given way to a firm correction, and the falls already seen to date have been spread across most geographical areas and price brackets. It’s possible the national average property value will ultimately drop by 10% to 15% by the middle of 2023, which broadly suggests we’re potentially halfway through this correction in both duration and scale.’’
Davidson said it had been more than a decade since there had been a similar drop in sales activity.
ANZ on Tuesday updated its house-price forecast to a fall of 15%, from a previous prediction of 12%. It said high inflation would mean more pressure to increase interest rates, which would push prices down.
‘‘The rest of 2022 and into 2023 looks set to remain a testing time for market activity levels,’’ Davidson said.
‘‘The economy remains a little fragile, net migration could stay relatively subdued, even as the borders fully reopen, and on top of that, credit conditions remain restricted and mortgage rates continue to rise. All of these factors point to further downwards pressure on property sales.’’
Corelogic expects there to be about 78,000 sales this year compared to 94,000 in 2021.
Inflation rates, economic health and the official cash rate would be key influences on New Zealand’s property market in the next 18 months, Davidson said, warning that recession risks were still prevalent and any signs of rising unemployment would have an adverse impact.
‘‘Should the economy start to feel the pinch of tighter monetary policy sooner than the Reserve Bank expects, the OCR may not need to go all the way to 4%, which would also tend to limit the peak for mortgage rates,’’ he said.
‘‘That said, offshore rates also matter too, and the key point is that mortgage rates are still likely to have further to rise yet.
‘‘Overall, the property market is clearly in a very different phase than we’ve seen for several years, with sales volumes low and values falling outright. Provided unemployment levels remain low in the range of 3% to 4%, the market should stay in a correction phase rather than moving into a serious slump.’’