New Zealand’s house prices are on track to drop by up to 20% in the next year – the biggest drop since the 1970s – two of the biggest banks have predicted, which would take prices back to where they were just over a year ago.
For years, the country has been plagued by a runaway housing market. The cities of Wellington and Auckland have some of the least affordable property markets in the world, and homeownership rates have been falling since the early 1990s across all age brackets, but especially for people in their 20s and 30s.
Now, New Zealand is in the midst of some of the largest drops and slowdowns since the aftermath of the global financial crisis. The number of houses sold in April was down 30% from the month prior, according to the Real Estate Institute, and, according to Westpac, prices fell by 1.1% in April – now down 5% from their peaks in November.
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Price drops and supply increases will be welcome news for prospective buyers, but recent first homebuyers who spent up large now to own an asset that is less valuable, and increasing interest rates due to inflation, could make paying off a hefty mortgage more challenging, as a cost of living crisis also bites.
Two of the country’s largest banks, Westpac and ASB, have now both sounded the alarm about dramatic drops in house prices over the next year, with ASB economists citing the “three big housing nasties” as the reason behind the receding prices: tighter credit conditions, higher mortgage rates and increased supply of new housing.
“However, the bulk of the house price impact from the mortgage rate surge is yet to come. About 60% of all mortgage rates will be reset over the coming 12 months,” ASB said.
Interest rates could nearly double for some households, ASB economists said, but it does not expect the change to lead to widespread mortgage distress or forced sales. “But the rate shock will siphon a bunch of extra disposable income out of Kiwis’ wallets this year, hitting discretionary retail spending hard.”
Westpac’s acting chief economist, Michael Gordon, told news website Stuff that while 20% sounded like a big drop, it would put prices back only on par with where they were at the start of 2021. Median house prices rose 31% in the year to July 2021.
“That illustrates the ferocity of the rise in house prices during what turned out to be a brief period of super-low interest rates,” he said.
Gordon added that increasing incomes and a rise in household savings would take the edge off a downturn. “The slowdown we’re forecasting looks more likely to be a soft landing, rather than a crash.” Source: Theguardian...