Home prices in New Zealand are falling at their fastest rate since the GFC, but early homebuyers are still closing out

Home prices in New Zealand are falling at their fastest rate since the GFC, but early homebuyers are still closing out

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House prices in New Zealand are falling in value at the fastest rate since the global financial crisis, but a bloated market, the cost of living crisis and rising interest rates are keeping many first-time homebuyers out of home ownership.

New Zealand has been plagued by a runaway housing market for years. Wellington and Auckland are among the world’s least affordable real estate markets, and homeownership rates have fallen across all age groups since the early 1990s, but especially for people in their 20s and 30s. The average house price nationally is now over NZ$1 million.

Real estate analysis firm CoreLogic released its latest home price index on Tuesday. It shows that the current market downturn deepened in July, with national property values ​​falling a further 0.9%, bringing the quarterly decline down to 2.5% – the biggest drop since October 2008, when the market broke away from the global financial crisis withdrawn.

Related: New Zealand property prices are rising despite the Covid recession, exacerbating the affordability crisis

Each of the country’s top six cities saw price declines – but there were some sharp falls in the Wellington region.

“Considering the growth rate in Wellington less than a year ago — at 36% — the fact that it turned negative in less than a year is quite remarkable,” said Nick Goodall, CoreLogic’s director of research. to RNZ

The capital could suffer a 25% to 28% annual decline if current rates stay on track, Goodall said, but at this stage the broad declines don’t signal a housing crash is imminent.

“The relatively controlled nature of this downturn is unlikely to ring any alarm bells among RBNZ staff [Reserve Bank of New Zealand] especially after such a strong upswing in value ahead of the end of 2021.”

With inflation hitting a three-decade high of 7.3%, the RBNZ’s priority will be to keep inflation low by raising official interest rates, he said.

House prices skyrocketed in the first year of the pandemic – median house prices rose 31% in the year to July 2021 – spurred by government policies to prevent a market crash.

“[The government] pulled out all the stops and sent a signal to homebuyers and sellers that they would not let the real estate market collapse,” said Dr. Michael Rehm, Senior Lecturer in Real Estate at the University of Auckland.

“In New Zealand we love our property…it’s often seen as a one-way bet…and with government support, it was a no-brainer.”

Investors and cashed buyers poured into the market. The government then tried to rectify the situation by hardening investors and updating responsible lending codes. The country is now beginning to see the effects of this policy, Rehm said.

But even with house prices falling and house prices forecast to fall further, first-time homebuyers will struggle to climb the ladder.

House prices would need to drop by as much as 70% to reach affordable levels that don’t overwhelm households, Rehm said, adding that this is a target number rather than a realistic one.

“You can imagine how much money households are spending on buying a house, paying the deposit, paying off the mortgage but also paying a lot more interest than they should – house prices should never have gotten so crazy – regardless from income.”

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