ANZ's economists are picking that house prices will have declined 11% over the course of this year but also warn that a bigger fall is possible, while residential construction will also take a hit.
In their latest NZ Property Focus report they describe their forecast of an 11% decline in prices this year as a "soft landing" for the housing market, but warn there are risks of a larger drop.
"In particular, sharp increases in global interest rate expectations have flowed through into still-higher mortgage rates in New Zealand, and while getting on top of consumer price index inflation with higher policy rates is the optimal thing to do from a sustainable economy perspective, house prices are likely to face larger near term declines if upside interest rate risks continue to materialise," the report says.
The report also warns that several factors are likely to reduce the construction of new homes.
"Residential investment is in the firing line as interest rates push higher to combat decades-high inflation, house prices fall and shortages of both materials and labour continue to add uncertainty in the near term while limiting upside growth potential," the report says.
"In short, the calculus of building has shifted dramatically in the space of a few quarters and the stars are now aligned for an unwind.
"In fact, some indicators are already pointing sharply south, but it's difficult to diagnose whether this is more a story about constrained supply or waning demand.
We think it's a mix of both, but come 2023, softer demand will be the dominant driver."
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57 Comments
"ANZ's economists are picking that house prices will have declined 11% over the course of this year but also warn that a bigger fall is possible, while residential construction will also take a hit."
what 11% over the year are they talking as are already witnessing a fall of 10% to 15% as 1.4million dollar house (Originally asking) has a asking of 1.2Million and many houses that were expecting 1.2Million are not even fetching a million or near around.
Despite the fall, when a new house is listed, it is at peak price and only after being rejected for a month or two, do they drop their price and again that depends on vendors circumstance.
By end of year should be easily 20% to 25% down from Peak. Say 11% is being optimistic and trying to calm fear among sellers.
No one seems to talking about the elephant in the room.. Real Estate Agents!
Right or wrong, they will still try and push for the highest prices for as long as they possibly can.
Agents want the fastest sale as possible. If they have to spend a few weeks getting you 50 grand more for your house, that's worth bugger all to them.
It’s the story of a house price bubble which has burst. It’s always a slow bleed and guessing game.
There is no uncertainty, apart from exactly how much the house price index will fall in the next 5 -10 years like every bubble that burst before it.
But what we do know is property bubbles don’t burst with only a 15-20% fall, like the vested parties are trying to tell us.
We have the highest house prices globally on most metrics.
And prices are falling faster than any previous bubble… and we are only 6 months into the monetary tightening cycle.
In every market, when rates go up, things blow up.
We were warned by the IMF etc of what we were creating. But no one wanted to talk about it because property is the growth engine of the nz economy.
We need to take the medicine and the pain and rebuild better.
This is the crash that NZ really, really needs. Hopefully it will teach us some (painful) lessons.
https://www.instagram.com/p/CdztxjdLbv9/?igshid=YmMyMTA2M2Y=
One month ago… If anyone is wondering how we got into this mess… here’s a few clues.
The ‘independent’ economist. Yeah, nah
Absolutely pitiful grammar there from the self-proclaimed property queen.
While I broadly agree house prices are falling and there is a real risk of a large fall, I think you are overreaching on a couple of points here.
Property markets can certainly fall by just 15-20%, and it's possible that's what we will end up with here. Calling a 'bubble' is always retrospective - no matter how obvious it may seem at the time the insanity can go on for a long time (as it has in NZ for several years now).
I would need to see some evidence for your 'when rates go up, things blow up' statement. Looking at NZ 2003-2008 rates rose by 50% and house prices doubled.
https://www.interest.co.nz/charts/interest-rates/fixed-mortgage-rates
https://www.interest.co.nz/charts/real-estate/qv-house-price-index
Can’t really compare 03-08 with now. Debt levels were much lower. With much higher debt levels now, the impact of interest rate increases is significantly more pronounced. We don’t have the same ability to halt and reverse interest rate increases either.
Sure, things are much more precarious now. But the statement was:
"In every market, when rates go up, things blow up."
During that period, rates went up and housing didn't fall. It only takes one example to disprove the statement.
There's genuine arguments for house prices falling, potentially significantly - no need for poor arguments.
Look at debt to income average 3 bedroom house in Auckland is 10 x average wage couples income they also need to find 20% deposit. Prices will drop till a larger percentage of population can afford to purchase, I would say around the 500k for a good 3 bedroom is the affordable level. Interest rate will probably go higher and will not back down to emergency levels l for the foreseeable future.it will take a couple of years for the crash to be completed and after this prices will flatline for years or stay with inflation.
You may be right. I can easily conceive of a future where interest rates quickly fall back down next year (some of the inflation we are seeing is probably genuinely transient), or where they persist higher for a few years. Who knows?
Regardless, my issue wasn't so much with the conclusion but with the logic of the OP.
MFD - when the market peaked in Ireland in 2007/2008 rates were circa 6%. A year later they had fallen more than 50% to sub 4%.
It wasn’t enough to stop house price falls of over 50% over the next 4 years.
It’s the thing about bubbles - when the levee finally breaks a 20% fall still looks overpriced, and there are no incentives for new capital to enter the market.
Yes, you are technically correct but with any dataset there are normally outliers.
This is a good podcast on why we believe what isn't true with Tim Harford.
https://open.spotify.com/episode/4ewH4NFpIpDA3TFLpSxI38?si=qWtttfo9Tf6c…
Hi MFD
I can’t remember when I first heard the term but the logic is sound - There are people and positions in every market that are highly exposed to rapid rises in rates… and it breaks them.
house prices went up but they stopped in 2007 then dropped a bit, when interest rates were really high. Interest rates dropped in 2008 due to GFC that saved things a bit. I know people who bought property in Auckland in 2006, ended up in negative equity, held onto it for 3 yrs til 2009 then sold at overall loss.
ie people lost money buying a house in Auckland in that time when interest rates went really high. Big delays between cause and effect....makes it harder for people to see :)
The big problem is that with inflation the new build costs continue to rise. Basically the government then only needs to let more people into NZ and there goes that predicted crash. To me a crash still looks to be easily avoidable. Currently it's still a controlled decent the RBNZ still refuses to get serious about inflation and is happy to let it rip to eat away the debt. A few people are overleveged and have been caught with their pants down and can see possible ball breaking high interest rates coming and are trying to exit the market but for the majority it's still business as usual.
RBNZ could refuse but that's where markets come in: lending rates have risen 2x OCR.
Opening the doors wont save the housing market.
Who (with money to buy overpriced houses) do we think is so desperate to come here. We need professionals with cash... not low skilled people. We have replaced most tech and productive industries with house building and related services.
Added to that the current flow of people is going the other way, young people are leaving for better prospects and as of now tradies are also leaving.
The government has a lot to do - to make us an attractive prospect for high skilled, portable workers that we need.
It is the price of land that is what has driven the housing market, not the cost of building so much.
It is the price of land that is what has driven the housing market, not the cost of building so much.
I would need to see some evidence for your 'when rates go up, things blow up' statement. Looking at NZ 2003-2008 rates rose by 50% and house prices doubled.
JAPAN.
- [1]Plaza Accord on September 22, 1985
- [2]First round monetary easing (January 30, 1986): Official discount rate cut from 5.0% to 4.5%
- [3]Second round monetary easing (March 10, 1986): Official discount rate cut from 4.5% to 4.0% simultaneously with FRB and Bundesbank
- [4]Third round monetary easing (April 21, 1986): Official discount rate cut from 4.0% to 3.5% simultaneously with FRB
- [5]Fourth round monetary easing (November 1, 1986): Official discount rate cut from 3.5% to 3.0%
- [6]Fifth round monetary easing (February 23, 1987): Official discount rate cut from 3.0% to 2.5% in accordance to Louvre Accord (February 22, 1987)
- [7]BOJ signalling possible monetary tightening
- [8]Black Monday (NYSE crash) on October 19, 1987
- [9]Consumption tax introduced
- [10]First round monetary tightening (May 30, 1989): Official discount rate hike from 2.5% to 3.25%
- [11]Second round monetary tightening (October 11, 1989): Official discount rate hike from 3.25% to 3.75%
- [12]Third round monetary tightening (December 25, 1989): Official discount rate hike from 3.75% to 4.25%
- [13]Fourth round monetary tightening (March 20, 1990): Official discount rate hike from 4.25% to 5.25%
- [14]Fifth round monetary tightening (August 30, 1990): Official discount rate from 5.25% to 6.00% due to Gulf Crisis
- [15]Stock price tumbled to half the level of the peak
But what we do know is property bubbles don’t burst with only a 15-20% fall
Prices in freefall will cause the damage to spread into other parts of the economy that were artificially inflated by wealth effect, i.e., consumer durables, domestic tourism and hospitality.
Also, allied sectors fold like a deck of cards - real estate, construction and financial services.
Those industries contribute to more than 40% of NZ's economy combined, as per numbers from Stats NZ.
Exactly. The indirect impacts of house price falls are probably greater than the direct impacts.
Yip, which is why we should never have let housing get to where it did. A Powerade and Maccas the next day is too little too late to stave off the hangover, the damage was done the night before. It's now too late for the housing market, those of us warning about this 'the night before' when everyone was having a good old time, we were labeled negative party-poopers more commonly known as DGM's. You make your bed NZ...
Lol - we just had to keep on pumping air into the balloon.. even when it was creaking.
The Rockstar economy is just about to have a rockstar ending...
Think Jimi Hendrix, Jim Morrison & Amy Winehouse
Imagine the 'Party-poopers' (I call them realist) grouping together and running the country. We are the people who go humm...this all seems too good to be true, people are making more money from owning a couple of run down houses than going to work -how's that sustainable?....people who took high risk and geared up with multiple properties are making tax free millions.. not good... not good for social equality, not good to reward high risk taking.. not rewarding productive work....Naive first home buyers are the most at risk..we can see that, we wish it was those who made the couple of million tax free gains that are going to be hit by the only tool that's really used to try and fix it- rising interest rates, but no, we know who it'll be. Can't go on, is like pyramid scheme...Would the GFC occurred if we were in charge of Americas banking system in in the early 2000's? We are sensible, intelligent realistic people who know easy money can only go bad and believe in an honest days work. Bring on the realist!!
There is no uncertainty, apart from exactly how much the house price index will fall in the next 5 -10 years like every bubble that burst before it.
Really? Where's your evidence the House Price Index had "5-10 year falls like every bubble that burst before it"?
https://www.corelogic.co.nz/news-research/news/archive/a-short-look-bac…
https://en.wikipedia.org/wiki/Housing_bubble
See chart: Large housing bubbles in OECD counties 1970-2015 (someone needs to bring it up to 2022)
It shows peak to trough, duration etc
When the levee breaks the falls are not less than 20%
Corelogic are heavily vested in the NZ property bubble - they are one of the loudest voices in the "falls won't be more than 15%" brigade.
That old trick eh? Factually correct but by your omission it is misrepresentative.
You are talking the inflation adjusted movement (not the actual dollar price which is what the house price index measures...)
It's a bit of clever misrepresentation when you fail to mention you are accounting for deducting the rate of inflation from the actual dollar price of a property.
Falling prices for 5-10 years you say... when in fact prices went UP not down!
There is much confusion around this very issue. The fact is not so much the value of a dollar when it comes to property but the dollar price.
i.e. From 1975-81 real property prices fell by 40% but the actual dollar price rose by 37%.
So anyone who bought in 1975 and sold in 1981 made 37% but in your opinion they lost 40%... go figure?
Government should step in, New Zealand cannot afford 'to take the foot off the gas' in residential construction. Not even momentarily.
How do they step in? If the kickstart the LSAP programme & lower interest rates back to .5% then this will lower the NZD and drive CPI inflation higher. I paid $3.30 per litre for gas yesterday this is despite the govt removing the 25 cents tax. I should really be paying $3.55. If they lower OCR back to .5% and kickstart LSAP then I will probably be paying close to $4.
The govt is caught between a rock and a hard place.
NZD is already down around 14% if RBNZ doesn’t keep in line with the FED NZD will continue to tank putting inflation even higher.
Government will take over the better developments for social housing? But a lot of the stuff being built is too rubbish for them to even touch.
Better option is probably to pick up out of work builders and put them on KO builds.
I kinda of agree...
But things like liberalising or at least softening rules about materials.
Also free more and more affordable space to build on.
Make remote working opportunity the norm (and if you absolutely need peps getting the car, make the company that requires it paying more taxes)
UBI
severily punishing land banking
etc...
Will be interesting to see if we still have a housing shortage in 6 months.....
I want to know what the Govt. (any party) plans to do when we reach the bottom of this (whatever that is), so we don't get a rinse and repeat.
The best time for any re-set of policy is at the bottom ie a new Phoenix arising from the ashes.
It depends...
I don't get why TOP is not yet in the MP zone
People is weird... they just complain
If their policies were any good people would be voting for them. I would be a traditional national or progressive party (like top) voter. but their policies are both wrong.
Winston at least wanted to halt the housing ponzi and had common sense... and some guts.
Top (proposed a land tax instead of biting the bullet and campaigning for a CGT like every other country) and National (7 house Luxon and his team of property investors) need to read the room and get with some visionary policies that give NZ a better future...
just bang in a CGT, focus on climate change, education, health and tech/agri-tech/climate-tech and get things moving. As long as we focus everyone on 'every 10 years the housing market doubles' nonsense we just keep going back to the same boom/bust cycle and ultimately will lose out vs countries that invest in their people and productive businesses.
I am pretty much agreeing with you...
Skills are the most ROI positive thing, even in the short term.
Problem is that skills require energy (menthal energy, willingness, etc...), so people look for "passive income" (aka assets appreciations, usually, not always, but mostly)
This quest for passive income (so that you can avoid to put any energy at all in your life soon or later and can finally slowly die in fron of a tv) is probably the worst cancer we have.
CGT doesn't make much sense in a falling market anyways.
So yes, taxing land is actually much better.
If it was for me I would move all taxes away from production and put all fiscal weight on assets holding.
Take water from the lake, not the stream.
is the land tax only for second properties+ ? or does it apply for the main residence?
I am not sure... I'd probably prefer second+ , but that is just my preference
CGT in USA/Canada/UK/Australia has not stopped the same housing bubble as NZ so unless NZ is fundamentally different,- which it isn't - CGT is not an answer and currently with asset prices reducing CGT would not produce any tax. A better place to start is Govt expenditure and the obstructionist bureacracy reducing both and insisting by targets/measurement better bang for buck with the reward for failure transfer to the unemployment queue.
Yeah, LVT on the unimproved value of land would clearly be a better option - coupled with reducing income tax.
Ba haaa haaaa, "Winston at least wanted to halt the housing ponzi ..." which was why he forced the government to abandon any sort of CGT. A laughable comment if ever there was one as he is known to own rentals and have hands in various property enterprises.
TOP wants to change a LOT of things, because there are a lot of things that are broken. But voters want to ignore all the broken things and live on in fairy tale economics land. Until voters recognize things are broken (people are slowly waking up to this in the current environment), they will simply keep the red/blue revolving door going as they cannot comprehend all that is broken, because they don't want to comprehend it. That's the same in pretty much any country that elects leaders.
I vote for TOP, but hold little hope of them getting into power because when I talk to people about pollution/unsustainable economics/physical growth limits, they deny/obfuscate/ignore and fantasise reality. Which holds them back from actually fixing the deep rooted problems we have. Even TOPs policies don't go far enough, but they are a start.
RBNZ will have lifted the cash rate by 100 bps in the next 51 days. Most people don't realise what is about to happen.
To curtail inflation interest rates historically have needed to be CPI +2-2.5% , at current levels of cpi around 6% think what 8%+ interest would do and for the brave think what not raising rates to curtail inflation will do - New Venezuela here we come.
Fortunately, most kiwis' mortgages are on fixed rates so crisis averted by households.
Everyone can wipe the sweat off their brows because they've made a sound financial decision.
House prices are the casualty of the 'war on inflation' it seems... mean whilst less houses will be built as a result of higher interest rates and supply constraints.
Oh wait... that means there might not be enough houses to meet demand so prices would then rise!
The cost to build a house will keep rising due to higher building costs and interest rates (ie that developers have to pay on their funding) which begs the question.
How can property prices fall and stay down for years by 20% or 30% or as some here wishfully hope by 40% or more, when the cost to build is higher, there's less competition by the reduced number of developers building and there are less houses being built?
I hear you say "Because prices are sooooo unaffordable!"
Well sadly you cant have the best of every world.
If you want cheaper houses expect less houses to be built, less supplied, therefore less houses will be available to buy.
Unless of course you are hoping lots of people can't afford their mortgages so will have to sell collapsing house prices altogether to a "more affordable" level (therefore the people who lose their homes become tenants themselves and need a rental to occupy) ie the homeowner becomes a tenant in the name of making homes more affordable for tenants to become homeowners... lol!
Sounds like a reverse ponzi scheme... i.e. generates returns from later investors/buyers with value taken from earlier investors/buyers.
House prices reverting to affordable levels is a reverse ponzi? Brilliant.
Tell that to the first home buyers of the last 3 years who will have to sell at a loss when they cant afford the higher mortgage rates?
What we have seen is buyers borrowing to their full limit to get into houses.
Their credit is fully tapped out, so now as interest rates rise, credit availability cant sustain house price growth even with a lack of supply.
Im afraid that unless inflation magically disappears allowing interest rates to drop again there is only 1 direction for house prices.
Demand works both ways...
When the rates are so high the pool of buyers have gone poof there will be less demand, the costs will come down...
So i dont really get the cost argument when demand is evaporating month by month.
Good to see some price falls but lets not forget we havent even got back to where we were pre pandemic levels yet,hardly a bubble burst.More like a correction back a little due to all that free money added to the economy.
We still need to go lower but even then Doomsayers it will only be close to previous levels which were unaffordable.
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