New Zealand house prices to stabilise next year; affordability concerns remain: IMF

NEW Zealand house prices are expected to continue their decline into 2024 but could stabilise early next year, with housing affordability remaining a concern in the near term, the International Monetary Fund (IMF) said on Tuesday (Aug 29).

Prices could fall 20 per cent from the November 2021 peak, although higher cash rates would hit affordability, and efforts must be made to expand the housing supply, it said.

The Reserve Bank of New Zealand (RBNZ) has been aggressively hiking the cash rate to tame inflation in the country, which has one of the highest house-price-to-income ratios in the world.

“The structural features of New Zealand’s housing shortage have not been addressed by the cyclical downturn in prices,” the report said. “Despite the decline in prices, higher mortgage rates have hampered affordability by raising mortgage payments for borrowers.”

A strong labour market and the still-significant levels of housing equity among the majority of borrowers had kept arrears low, although the RBNZ has warned there could be an uptick in loan delinquencies as mortgage rates reset.

New Zealand banks’ conservative credit policies, along with high capital levels, suggest non-performing loans would remain manageable even if they rose as expected, IMF said.

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More broadly, the IMF said the New Zealand economy will grow at a slow pace – by around 1 per cent in 2023 and 2024 as monetary tightening takes hold.

“The slowdown is likely to be led by weakness in domestic private demand – both consumption and investment,” it said. REUTERS