Average house prices in the country rose by more than 40% at the height of the pandemic before reaching a peak in November last year at levels the Reserve Bank of New Zealand (RBNZ) said were unsustainable.
As the RBNZ has aggressively hiked the cash rate, and mortgage rates have followed suit, prices have retreated sharply, but not enough to solve the affordability crisis that has left many potential homebuyers renting.
Average home prices were expected to decline by 11.5% this year and 6.0% in 2023, a Nov. 9-23 Reuters survey of 12 property analysts found.
Those estimates showed a slightly deeper decline than the 10.0% and 5.0% fall predicted in a September poll.
Still, that fall would be tiny compared to the 250% rise in New Zealand house prices since 1998, almost four times the average increase across OECD countries. House prices have nearly doubled in the last seven years alone.
"The fall has been very orderly so far," said Sharon Zollner, chief economist at ANZ. "Even a 20% fall could be considered a soft landing. A hard landing would likely require an employment shock and forced sales, and we are not seeing any evidence to suggest this is happening en masse."
Asked how much average house prices would fall from peak to trough, analysts who answered an additional question gave a median estimate of 18%, with forecasts in a 14%-23% range.
"In percentage change terms, this sounds rather drastic, but it's still only a partial unwinding of the COVID period run-up," Zollner said.
The RBNZ said it expects house prices to fall by around 20% from their peak a year ago but some respondents in the poll said more was required to make housing affordable.
Infometrics and Macquarie Bank said average house prices would have to fall by 33%-38% - almost the amount they fell around the time of the oil shock of 1973 - to make housing affordable.
"Things are moving in the right direction, but there is still a four-day camel trek away from being anywhere near affordable. But a lot needs to happen to better balance the housing market here with a horrible undersupply of houses," said Jarrod Kerr, chief economist at Kiwibank.
While lower house prices would help improve affordability, it would be bad for recent homebuyers who would face seeing their capital decline and higher repayments as interest rates rise.
The RBNZ, which explicitly considers house prices in its policy deliberations, has hiked the overnight cash rate (OCR) by a total of 400 basis points to 4.25% since October last year and now sees it peaking at 5.5%.
Mortgage rates have gone up everywhere but they are likely to be felt more acutely in countries like New Zealand, Australia and Canada where more home loans are issued on floating rates.
(For other stories from the Reuters quarterly housing market polls:)
(Reporting by Vivek Mishra; Polling by Devayani Sathyan, Veronica Khongwir and Vijayalakshmi Srinivasan; editing by Barbara Lewis)
By Vivek Mishra
