Real estate cooling in all regions
It would take a 30% decline in house prices this year for prices to return to the level they were at relative to incomes before the pandemic, ANZ economists say.
But it still only expects a 10% fall in prices over the year to December.
Prices have dropped by 4.1% since November last year, and seasonally adjusted prices have now declined for four months in a row.
The bank’s chief economist, Sharon Zollner, said the market was softening because demand was hampered by higher mortgage rates and the number of listings was rising.
A 10% decline would constitute a soft landing for the market, and would leave prices 30% above their pre-pandemic level, but there were downside risks, she said. ‘‘A tight labour market, and building wage pressures should put a floor under household incomes and the housing market.
‘‘But there’s no shying away from the fact that mortgage rates are well above their pre-pandemic level, and listings are back at 2019 levels.’’
A lot depended on a robust household sector to hold it all together, and the risk of a very hard landing in housing would come from a household income shock, she said.
‘‘The ‘animal spirit’ component of the cycle can be pretty wild, so it’s possible that increasing patience among buyers and rising listings leads to a much sharper correction in prices over 2022 than we expect. In theory, that will add volatility to the housing cycle but shouldn’t alter the longer-run value of a property, which is ultimately a supply and demand story.’’
The bank’s economists also looked at markets in 14 key regions, and found they all had strong housing demand and constrained supply in recent years, which drove double-digit price increases.
But Zollner said all regions were now on a cooling trajectory, although some were more convincingly ‘‘cool’’ than others.
Auckland, Bay of Plenty, Hawkes Bay and Otago were all well off their peak, while in Canterbury the boom was still winding down.
All regions appeared susceptible to much weaker price increases over the year ahead, she said.
Despite this, widespread deterioration in housing affordability in recent years meant houses in every region would still be less affordable than before the pandemic.
Zollner said no region could hide from the shifting supply and demand balance currently under way. ‘‘But robust regional economies and labour markets will, hopefully, limit the fallout as housing continues to soften.’’