The last quarter of 2022 saw a sustained decline in the country’s property market. The House Price Index (HPI) fell by 1.3% in October, 0.6% in November, and 0.2% in December. Despite the slowdown, analysts predict that there will be an ongoing weakness in the market in 2023. Issues such as the ongoing high levels of inflation and the official cash rate (OCR) have been identified as likely contributors.
Nick Goodall, head of research at CoreLogic, said that the gradual decline did not indicate that the market had reached the bottom of the downturn, especially given the expectation of further interest rate increases during the first half of 2023. With higher rates, borrowers would find it harder to secure the financing they needed. Property values are also expected to keep falling, having declined by 5% nationally in 2022. This resulted in the average house price falling from $1,007,000 at the start of 2022, to $956,000 by the end of the year. However, even with this decline, property prices remained well above pre-pandemic levels.
Over the last few years, property prices in New Zealand have spiked strongly thanks to support and funding from the government and the Reserve Bank that sought to prop up the economy. An IMF report on housing market stability and affordability in the Asia-Pacific region indicates that this year could see a price correction. The huge economic support and stimulus mean that the economy has further to fall once support is ended.
Principal economist at Infometrics, Brad Olsen, has said that though housing prices have not yet dropped to pre-pandemic levels, the orderly manner of price declines in 2022 did not indicate the likelihood of a snowball effect towards a big correction.
With the Reserve Bank releasing a report that forecasts that inflation will remain stubborn, there are expectations that the OCR may be pushed to a higher peak and that a recession may occur. These outcomes are expected to put a damper on property demand and result in further value decline. The Reserve Bank’s last increment to the OCR occurred in November 2022 when they increased the rate by 75 basis points. At the time, it was predicted that the benchmark would need to be raised to 5.5% in 2023 to push inflation into the 1-3% target range.
With higher mortgage rates, the government is hoping that household spending will fall and there will be a reduction in property prices. House prices are expected to decline by over 20% from their peak levels reached in 2021.
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