Kiwi house prices continue to fall. But they won’t fall forever.

  • House prices continue to decline across Aotearoa, according to REINZ. House prices are down 17% from the November 2021 peak. The rampant rise in interest rates is restraining demand – by RBNZ design.
  • There was a strong burst in house sales in March, despite lingering wet weather. Sales are down 15% on last year, which is an improvement from the -30% contraction in prior readings. It seems the impact of the flooding and cyclone dissipated quickly.
  • Our outlook for the housing market is unchanged, we continue to expect a fall from peak to trough of a little over 20%. The market should stabilise into 2024. Net migration is surging, and rates will fall, eventually.

A bounce in sales looks good, but we need more.

In what looked to be a glimmer of hope, seasonally adjusted house sales recorded a strong burst in March, up 10%.  But we’re not reading much into the datapoint. The March burst in sales follows the severely debilitating February month, down 5%, ravaged by wet weather. February’s figures showed significant disruption in affected areas, and the March rebound was a bit of payback. We need to see a sustained increase in activity. And we are quietly heading into the weaker (colder) months.  

We really need to see how the property market is performing later in the year, especially over the seasonally strong spring and summer months. (Hopefully) many damaged houses will be fixed, and any lingering impacts from the flooding and cyclone on supply will have eased. It’s demand that remains in focus. The full force of RBNZ rate hikes, with another coming in May, will be felt over the next 6 months. The impact of the RBNZ’s heavy hand is already clear. At $775k, the median house price has fallen swiftly from the $925k peak in November 2021. And the likelihood of an RBNZ-engineered recession will dampen confidence in the market. There are clear risks in the housing market from a potential overtightening in policy. We continue to forecast a peak to trough decline of a little over 20%. There are still further falls to come. But we believe we are most of the way through the correction.

We are likely to see some green shoots emerging as we head into 2024. We expect interest rates to fall later this year, net migration is surging back, and there’s still a shortage of dwellings. We expect the housing market to bottom over the second
half of this year, and we should see some slight gains next year.

REINZ_Mar23.pngThe median number of days to sell a property will be a good indicator of any turn in activity, and sentiment. In the March month, the days to sell across Aotearoa eased back down to 49 days (seasonally adjusted), from 53 days. But for context, that’s still tracking well above the long-run average of 39 days. The housing market remains weak. And the upward trend in total listings illustrates the difficulty in clearing stock. Despite fewer listings each month, the supply of listed property has increased. It is clearly a buyers market out there, with sellers either having to lower their already crushed expectations, or delist. And although it is a buyers market, buyers face much higher interest rates and reduced lending capacity. This is all by RBNZ design.

The extremities of the country outperform.

The North Island continued to underperform the south. And the extremities of Aotearoa are experiencing a softer, slower slowdown. In the city of soft sales, house prices have fallen 22% from the peak. The days to sell in Auckland are long, at 47 (seasonally adjusted), compared to the long run average of just 36. Although the number of sales bounced back strongly following the floods, activity remains weak. In the capital, house prices have fallen a little further, down 24% from the peak. And the days to sell are frustratingly high at 53. Having touched $1 million in October 2021, the median house price in Wellywood is now $750k.

Northland and Waikato recorded relatively softer falls in house prices of 10% and 13% from the peaks. At the other end of the country, Southland has recorded a decline in 

house prices of just 6%. Otago and Taranaki are also holding up relatively well, with just 6-7% declines from peak. Nevertheless, the regions are following the large cities lower, and may play a bit of catch-up. The median number of days to sell a house in Northland and Waikato have lifted sharply in recent months, and cracks are beginning to show. 

House prices in Canterbury are down just 7%. And activity in the market is lot healthier. The housing market in Christchurch was not quite as hot as the northern regions to begin with. Christchurch did not experience the same excesses seen in the North Island over 2020-21. 

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