The great New Zealand house price tumble

New Zealanders' love affair with residential property has partly been due to housing having delivered such strong investment returns for many years.

However, the once-robust steady march upward of house prices reversed over the last year.

The latest Trade Me Property Price Index has revealed the average asking price for a house in New Zealand in December was $897,900, falling $58,200 in just 12 months. The price falls were across all regions, and a more recent CoreLogic report supports the Trade Me data.  

Prices Down Across New Zealand

The Backdrop

House values skyrocketed during the first year of the pandemic – median house prices rose 31% in the year to July 2021 – spurred on by government policymaking designed to avoid a recession.

“[The government] pulled out all the stops and sent signals to homebuyers and sellers that they were not going to allow the property market to collapse,” said Dr Michael Rehm, a senior lecturer in property at the University of Auckland.

Trade Me Data

Back to 2023, and Trade Me property sales data is probably telling us what we already knew: prices are down. Trade Me property sales director Gavin Lloyd has said “The Auckland and Wellington regions saw the largest price declines. In the capital, the average asking price dropped by 9% year-on-year for the second month in a row to $875,550, while in Auckland it fell by 8% to $1,149,450.” Lloyd said Hawke’s Bay (-7%), Manawatū/Whanganui (-4%), Gisborne (-2%) and Bay of Plenty (-1%) also saw average asking prices drop during December 2022 when compared with December 2021.

“This was the first time on record prices have fallen in the Bay of Plenty region, with its average asking price now sitting at $936,850, a whopping $64,700 below its all-time high average asking price recorded in February 2022,” Lloyd said.

CoreLogic

Meanwhile, according to updated CoreLogic information, property values recorded a 0.3% fall in January 2023. This is the 10th consecutive month of declining home prices across the country, CoreLogic’s House Price Index revealed. Residential property values are 7.2% lower than a year ago, the biggest 12-month decline since May 2009 (-7.9%), although still smaller than the worst of the Global Financial Crisis when prices fell 9.7% in the year to March 2009.

CoreLogic NZ chief property economist Kelvin Davidson said it was not a surprise to see property values fall further in January.

“Some green shoots of optimism had started to emerge in September and October last year on the back of a view that mortgage rates may have been at or close to a peak leading to some slightly stronger offers being made around that time,” Davidson said.

“But then in November, the Reserve Bank released its gloomy outlook for both the economy and inflation for 2023, which was always likely to impact property values in the following few months. Admittedly, we’re not seeing any real evidence yet that homeowners are looking to ramp-up their selling activity – they can generally sit in the market for as long as it takes, or just delist.”

City by City

CoreLogic found Tauranga was one of the only cities to see values lift, inching up 0.3% in the past three months. Meanwhile, Christchurch’s average property value fell by 1.1% in January.

“The Garden City is still relatively affordable and the decline over the past year has been less dramatic with values only 1% below the same time last year,” Davidson said.

In the capital Wellington, prices have already fallen 18.1% from a year earlier, the latest CoreLogic data shows.

Dunedin and Wellington also recorded falls larger than the national average in January, however Dunedin is starting to show a bit more resilience with values only having edged down by 0.3% since October. Wellington continued to drop in the first month of 2023 with values falling 1%.

Auckland’s 0.1% fall over the month reflected a “mixed bag”, with the city area rising by 0.8%. Despite a rise of 0.4% since October, Auckland City’s average values are still 7.2% lower than a year ago, with most other parts of the super-city down by between 8% and 10%.

Price Declines Are Slowing

CoreLogic data showed the quarterly drop in home values was the smallest decline since May 2022 (0.9%), on the back of the monthly national fall easing to - 0.2% in December.

However, with a recession looming, ongoing inflationary concerns, more short-term interest rate increases possible, there’s no suggestion of an end or bottoming to this current down turn.

According to Davidson: “In the final few months of 2022, buyers and sellers made it clear they were not in a rush to complete property transactions. Sales volumes remained very low in the final quarter of last year as some buyers will have found it more challenging to secure finance, while others will be taking their time to strike a better deal.”

“In November the Reserve Bank released its gloomy outlook for both the economy and inflation, which was always likely to impact property values in the following few months,” said Kelvin Davidson, chief property economist at CoreLogic. “Buyers still hold the balance of power when it comes to pricing, and this has clearly driven a further leg down for values in January.”

Interest Rates

The Reserve Bank of New Zealand increased the Official Cash Rate (which essentially sets the bank interest rates) by a record 0.75% and projected it was going to go much higher this year, which could cause the economy to contract. Consequently, economists are predicting house prices will fall further through 2023 and will be at least 20% below their late-2021 peak by early 2024.

As so many of us borrow money to buy a house, house prices can be closely linked to interest rates.

Picking what will happen next with interest rates is anyone’s guess, though independent New Zealand economist Tony Alexander, who is widely followed in property circles, had this to say:

“I think there’s a growing realisation that with the economy potentially going into recession, inflationary pressures definitely will eventually fall away and that means the Reserve Bank will be cutting interest rates, probably strongly, through 2024-2025.”

Important labour market data, just released, might support Alexander’s theory. This data is all considered when the Reserve Bank sets interest rates.

Mortgages

While home-loan interest rates are rising in response to the Reserve Banks’ moves, the full impact is yet to be felt because many New Zealand households are on fixed-rate mortgages that have yet to roll over onto a new, higher rate.

New Mortgages, or Finishing a Fixed Term

For mortgage-holders who buy into Tony Alexander’s logic, and who can afford to do so, that might mean float or fix a current mortgage for one year. Then, they’re well-positioned to take advantage of the likely drop-in rates in 2024-2025.

Given the property market slowdown, for anyone seeking lending, banks are hungry and fighting for new business, which is refreshing. Many are promoting 1% cashback offers which is great for anyone working with a mortgage broker (‘mortgage adviser’ – including those at Become Wealth) and by throwing this much cash to support new clients, provides a great incentive. There is plenty of opportunity for first home buyers in the current market because they have more choice – if they meet lending criteria, banks will be lining up.

Learn more: What to do if you can't afford a house

What Next?

Research released last year found that between 1982 and 2011, the average growth rate of house prices over any ten-year period is almost exactly 100 percent, when averaged out across the entire thirty-year period. That means prices have doubled every 10 years. This doesn’t provide any guarantee about the future, though astute property buyers and investors will understand the importance of these findings and make forward-looking expectations based on their own analysis.

The Bottom Line: House Prices Have Fallen

The data is clear, and it’s telling us what we probably already know: house prices are down!

Over the next couple of years, it’s anyone’s guess what might happen to New Zealand house prices:

• On one hand, there’s now a more compelling story saying that mortgage rates are at or close to a peak, and the borders have re-opened to migrants, who all need somewhere to live. People still want to live in safe countries like New Zealand that offer residents’ good rights and privileges. Also, at last count, there’s still 25,000 people waiting for social housing – in mid-2019, pre-Covid, the number was 14,500! Household income levels are also up. This all supports sustained property growth.
• On the flipside, the first signs of a weaker labour market and emerging job losses are starting to show. A weaker job market means lower inflation, and less ability for people to pay back mortgage lending.

Whatever the case over the next 12 to 24 months, the backdrop indicates that over longer periods our house prices will probably stay on a steady upwards path. Any price fall can be expected to gradually recover. Though as always, whatever you make of this comes down to your current situation, along with your plans, goals, appetite for risk, and timeframe.

It would be the pleasure of one of our trained professionals or mortgage advisers ('mortgage brokers') to help you work through any of the topics mentioned above. Get in touch and we'll reply within a work day.