New Zealand housing market decline gathers pace as prices drop

NEW ZEALAND'S housing market decline gathered pace in July, with a key gauge of property prices recording its first annual drop in 11 years.

The Real Estate Institute's price index slid 2.9 per cent from a year earlier, the first fall since 2011, the group said on Thursday (Aug 11) in Wellington. On a monthly basis, the gauge has dropped for the past 5 months straight.

The reversal in house prices comes as the Reserve Bank pursues aggressive policy tightening to damp demand and curb inflation. It's expected to deliver a fourth straight half-percentage point interest-rate hike next week - taking the Official Cash Rate to 3 per cent - and signal more rises to come.

The RBNZ in May forecast house prices would fall 8.1 per cent this year, while bank economists are predicting double-digit declines.

"House prices have further to fall in the current cycle as credit conditions remain tight and confidence is lacking," said Jeremy Couchman, senior economist at Kiwibank in Wellington. He expects at least a 10 per cent drop in 2022 and notes the price index at present has only returned to May 2021 levels.

Still, accelerating declines in house prices and signs of cooling economic growth suggests the RBNZ may need to temper the pace of future tightening.

SEE ALSO

New Zealand posts first dip in inflation expectations in 2 years

New Zealand jobless rate unexpectedly rises to 3.3% from record low

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"The ongoing housing downturn will weigh on activity in earnest before long," said Marcel Thieliant, senior economist at Capital Economics. He expects the Official Cash Rate to peak at 3.5 per cent this year, compared with the 4 per cent high the RBNZ forecast in May. BLOOMBERG