New Zealand housing slump to go on after worst drop since 2008

NEW Zealand’s housing downturn likely has further to run even after the market suffered its worst decline since the global financial crisis.

Average prices fell 5 per cent in December from 12 months earlier, the biggest drop for a calendar year since 2008, according to CoreLogic New Zealand data released on Thursday (Jan 5) in Wellington. More declines are expected this year as the Reserve Bank (RBNZ) continues to fight inflation with a series of aggressive interest-rate increases.

While the pace of house-price declines slowed on a monthly basis, this probably reflected optimism earlier in the fourth quarter that interest rates were nearing a peak, said CoreLogic NZ head of research Nick Goodall. Sentiment has since changed following an unexpectedly high inflation report.

“Further information has led the RBNZ to forecast inflation will remain stubborn, thus necessitating a higher peak to the Official Cash Rate (OCR) and ultimately a recession,” said Goodall. “This probably means a continued constraint on property demand and subsequently further value falls, for longer.”

The RBNZ lifted the OCR by a record 75 basis points to 4.25 per cent in late November and projected the benchmark will need to reach 5.5 per cent this year to return inflation to its 1-3 per cent target. The central bank expects rising home-loan rates will curb household spending and push property prices down further.

“We don’t expect this to signal the bottom of the downturn by any means, particularly given the outlook for further rate increases in the first half of this year,” said Goodall. “This will restrict borrowing capacity and until rates stabilise we should be prepared to see further declines in value.”

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Fall in New Zealand confidence raises spectre of deeper recession

The RBNZ and most economists are predicting house prices will fall more than 20 per cent from their peak in late 2021.

In capital city Wellington, prices have already fallen 16.9 per cent from a year earlier, Thursday’s data show. In the largest city Auckland, prices are down 5.1 per cent in the same period. BLOOMBERG