Those taking stock of Australia’s deteriorating market conditions should spare a thought for their Kiwi cousins, with values in New Zealand falling further than predicted in 2022.
Values in New Zealand have already declined by around 10 per cent from their peak, and could potentially fall another 10 per cent in 2023, according to CoreLogic’s latest Best of the Best report.
“Our outlook proved to be correct, but we, and many others, underestimated how deep the downturn in sales volumes would become and also how far house prices would fall,” CoreLogic New Zealand chief property economist Kelvin Davidson said.
“For context, the GFC [Global Financial Crisis] saw a final peak to trough fall of minus 10 per cent,” Mr Davidson said.
For the 2022 calendar year, total sales volumes were around 67,000, the lowest since 2010, and the third lowest figure in the past three decades.
“It’s been striking just how weak sales activity has been this year, as buyers have taken their time to decide about purchases and vendors have also been able to ‘sit tight’ too – assisted by low unemployment,” Mr Davidson said.
The outlook for 2023 isn’t much better, he added.
“A total of between 65,000 and 70,000 [properties sold] is likely to be repeated [in 2023] and as the Reserve Bank is forecasting, it also seems plausible that property values could drop another 10 per cent or so, taking the total fall to about 20 per cent,” he said.
However, even under this worst-case scenario, prices would still remain near historic highs.
“If this does eventuate, it’s important to remember prices will still be 15 to 20 per cent above pre-COVID levels.”
Despite the pessimistic national outlook, there was significant variation among markets in 2022.
The highest 12-month change in median value was in Reefton, a small town on the west coast of the South Island which saw median values increase by 25.7 per cent.
The lowest 12-month change in median values was in Normandale, a suburb of Lower Hutt which saw declines of 20.3 per cent.
The outlook for the New Zealand’s market remains weak, according to Mr Davidson, with the Reserve Bank’s predictions the economy will enter a recession, high inflation until the second half of 2023 and increases to the cash rate and unemployment all weighing on sentiment.
Mr Davidson said that higher unemployment and the risk that mortgage rates could exceed 7 per cent could combine to drag prices lower still.
“Most importantly, for now however, there doesn’t seem to be a major risk of outright, large-scale job losses,” Mr Davidson said.
“Indeed, the rise in the unemployment rate in 2023 could be more about a larger labour force. Of course, being new, or returning, to the jobs market and unable to actually find a position won’t do much for borrowing ability or home-buying demand. But at least for those already in a job and with a mortgage, there should be some protection from widespread repayment problems and distressed sales.”
Like Australia, there continues to be a high level of uncertainty as to when the full extent of Reserve Bank rate rises will be felt in the New Zealand market.
Mr Davidson said that increases announced in 2022 will hit suddenly in the first quarter of 2023, which might remove the pressure for further rate rises.
While that would mean mortgage rates would peak at a lower rate, it would likely indicate a weaker labour market and a higher number of job losses – both negative developments for property.
“With gross domestic product figures soft and mortgage rates higher it’s hard to see property sales volumes climbing too much in 2023,” Mr Davidson said.