RBNZ now sees a bigger fall in house prices – 20% from peak to trough

The Reserve Bank (RBNZ) is now forecasting a peak to trough fall in house prices of about 20%, which is higher than its most recent forecast in August of a 15% fall.

In its latest (November) Monetary Policy Statement (MPS) the central bank says higher interest rates – in conjunction with low population growth, strong building activity and regulatory changes – have already contributed to a decline in house prices from their November 2021 peak.

The RBNZ came out with guns blazing on Wednesday as it hiked the Official Cash Rate by a record 75 basis points to 4.25%.

But although New Zealand house prices have now declined by about 11% since the November 2021 peak, household wealth in the June 2022 quarter was still 15% higher than at the end of 2020, the RBNZ says.

“The effect of the most recent reduction in household wealth on spending has also been outweighed by higher incomes so far. Although the outlook for residential construction has deteriorated due to falling house prices and higher interest rates, the number of new residential consents has yet to decline significantly, and forward order books for many construction firms remain full.

“Although the speed and extent of the decline is highly uncertain, house prices are assumed to continue to fall towards more sustainable levels over the coming year. The central projection assumes that house prices will decline by 20% in total from the November 2021 peak, ” the RBNZ says.

It says that higher interest rates, elevated construction costs and lower house prices are also expected to result in a decline in residential construction from next year.

“Residential investment is assumed to remain elevated in the near term as builders work through the large pipeline of consented projects, before declining significantly as a share of the economy over the medium term,” the RBNZ says.

“Lower house prices and higher interest rates are assumed to result in a sustained slowing in household spending, as households feel less wealthy and a greater portion of their income is directed towards servicing debt.

“Although household spending is currently supported by robust income growth, employment growth is expected to wane as higher interest rates contribute to lower overall spending and reduce businesses’ demand for workers. Consumption per capita is assumed to decline over coming years.”

In its last set of forecasts in the August MPS the RBNZ had forecast that quarterly house price drops would end after September of next year and with positive growth resuming in the December 2023 quarter.

But now it sees negative house price growth continuing through on a quarterly basis up to and including the March 2024 quarter. On that basis house prices will keep dropping all through next year and only start growing again in the June quarter of 2024.

The peak annual rates of projected falls have been increased as well. In the August MPS the RBNZ forecast a peak annual fall of 11.6%. However, it is now forecasting a peak annual rate of fall of 13.6% as of the end of the March 2023 quarter.

The RBNZ is not forecasting a return to annual house price growth until the September 2024 quarter.

The RBNZ had earlier indicated in May what would be required to bring house prices back to ‘sustainable’ levels but has more recently indicated that its definition of what a sustainable price is has subsequently now been reduced due to the higher mortgage interest rate costs now prevailing. IE house prices would need to fall by MORE than it earlier indicated.

It has not indicated in its current MPS what it would see as a sustainable level.


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