Downturn to continue into 2023, says CoreLogic
Decade-low sales volumes and fast-falling home values have deepened the decline of the New Zealand housing market.
With stronger mortgage regulation, conservative lending practices and rising mortgage interest rates, further falls in property values are likely in the months ahead.
Key dissimilarities between the GFC-induced downturn and today’s decline have been linked in CoreLogic’s Q3 Property Market & Economic Update – this reveals the total value of residential real estate has fallen from $1.73 trillion at its early 2022 peak to $1.62 trillion at the end of September 2022.
The figures also show that mortgages are secured against 21% of the total value, with the remaining 79% household equity.
Read more: New Zealand house values post first annual drop in over a decade
CoreLogic NZ chief property economist Kelvin Davidson (pictured above left) said despite further falls in property values seeming likely in the coming months, there was a sense that the “mood on the ground” had started to shift which could help sow the seeds of a floor for property values as soon as next year.
“Comparing the current downturn to the GFC, one big wildcard is low unemployment and nobody’s expecting it to suddenly spike higher. Strong employment should help to keep a floor under home values and be the difference between a correction and a more serious slump,” Davidson said.
“This is also sustaining a degree of pressure on inflation and forcing the Reserve Bank to keep raising the official cash rate which is now likely to reach 4% by the end of the year, and potentially go even higher in 2023.”
Davidson said property sale volumes remained very weak in the past three months.
“Days to sell has also risen as vendors aren’t generally being forced to sell and buyers aren’t in any rush either – knowing that they have the pricing power and plenty of choice amongst the existing stock of listings which has begun the seasonal spring rise,” he said.
“On the plus side, easing of the CCCFA rules may allow more people to access the market who might otherwise have been turned down for a loan.”
Read more: Spring has not sprung for property market
Davidson said New Zealand’s property values had fallen by a total of 6.3% over six successive months with the average home price now under the million-dollar mark at $977,158.
“This is down from $1,018,770 at the end of the last quarter and a peak of $1,043,261,” he said.
“Overall, this downturn in property values seems set to run into 2023. But it wouldn’t be a surprise to see a floor for values next year before some kind of recovery potentially begins in 2024 which would be a swifter recovery timeframe than seen following the GFC.”
Davidson said looking ahead, the rest of 2022 and into 2023 looked set to remain a testing time for market activity levels.
“After all the economy remains a little fragile, net migration could stay relatively subdued (even as the borders fully reopen) and on top of that credit conditions remain restricted and mortgage rates continue to rise,” he said.
“Challenges remain on the whole, but after a weak 2022 our working assumption is that sales volumes rise gradually in both 2023 and 2024 as mortgage rates eventually peak and then perhaps begin to decline a little again.”
David Windler (pictured above right), director and adviser at The Mortgage Supply Co, said property listings in most areas had increased from what he could see.
“I think that some investors are realising some of their assets as cash flows are impacted by change in rates and various legislative changes,” Windler said.
“For owner-occupiers considering a change, the consideration is now a more careful one of ‘should we take on a bigger mortgage?’.”
Windler said he had not experienced a change in any of the properties he was helping his clients purchase.
“Although rises in the official cash rate and in fixed rates during the course of the year have certainly impacted, servicing rates have risen in line with this and capacity to borrow has decreased, meaning for many their target purchase price has dropped. This flows through into the housing market and vendors are having to reset their expectations and meet the market.”