By Devayani Sathyan
BENGALURU (Reuters) – New Zealand house prices are set to fall further this year than previously thought, according to a Reuters poll of property analysts who forecast a peak-to-trough slump of over 20% as the central bank continues to hike interest rates aggressively.
Average house prices peaked in November 2021, having risen more than 40% in just two years during the worst of the COVID-19 pandemic, as home buyers took advantage of near-zero interest rates, making New Zealand one of the least affordable markets among developed nations.
Since October 2021, the Reserve Bank of New Zealand has raised its policy rate 450 basis points to a 14-year high of 4.75%. The central bank is expected to raise the rate as high as 5.50% later this year, which is likely to keep pressure on the retreating housing market.
Average home prices were expected to decline 8.9% this year, according to the Feb. 17-27 Reuters poll of 10 property analysts, compared to a 6.0% fall in a November poll.
Analysts predicted a small 2.8% rise next year, a downgrade from the 4.0% increase forecast in the previous poll.
“The reason for falling house prices is the very sharp increase in interest rates, which is making affordability of repayments quite substantially worse,” said Brad Olsen, principal economist at Infometrics.
Asked how much average house prices would fall from peak to trough, analysts who answered an additional question gave a median estimate of 21.8%, with forecasts in a 19%-25% range.
A like-for-like analysis of the latest poll and the previous survey showed over 80% of respondents, six of seven, now expected a bigger peak-to-trough home price fall. The other analyst left his forecast unchanged from the previous poll.
Given house prices have nearly doubled in the last seven years, the relatively small decline expected along with sharply higher borrowing costs, means entering the market will remain challenging for first-time homebuyers.
“The decline in house prices is one thing, but if you have got a cheaper house but no mortgage to afford it, you still haven’t got a house under your own name. It still means affordability is out of reach for many,” added Olsen.
Miles Workman, senior economist at ANZ, said house prices will fall more if “inflation remains a lot higher for longer than expected, requiring the Reserve Bank to be more aggressive with interest rate hikes. If that were to happen, mortgage rates would be higher.”
(For other stories from the Reuters quarterly housing market polls:)
(Reporting by Devayani Sathyan; Polling by Vijayalakshmi Srinivasan; Editing by Simon Cameron-Moore)