House prices continue to fall in an orderly fashion, says ANZ.
The country’s largest bank now expects house prices to fall 18% from their 2021 high, a rise from the 15% it previously expected.
Adjusted for wage inflation, that’s a drop of nearly 27%, almost completely wiping out home price gains from 2020 and 2021.
In their latest property update, the ANZ economists said inflation was accelerating at rates that “would keep the Reserve Bank awake at night”.
“And the worrying thing for the Reserve Bank is that it is the type of domestic inflation, which may be difficult to eliminate. In fact, the consumer price index for the September quarter saw [domestic] inflation hit a new record.”
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They said the case for raising the official cash rate (OCR) more than previously expected was strong. They now expect a 75 basis point increase in the next two Reserve Bank announcements, which will bring the OCR to 5% in February.
“This means higher mortgage rates, and sooner, which will affect home prices.”
From there, what happened would depend on the state of the economy. “Assuming the wheels of the global economy don’t fall off, if the labor market doesn’t ease soon, OCR may need to go higher still to prevent the wage and price spiral from developing further.”
If the government were to offer any additional fiscal stimulus, that should also be offset by a higher OCR, they said.
The bank’s economists said it was difficult to pin down the final floor for the property market.
Signs of improvement of late could be seasonal, they said.
Reserve Bank of New Zealand
Reserve Bank Governor Adrian Orr discusses the bank’s prediction that home prices could fall 20% from their peak.
Recent housing data had been a bit weaker than expected. “The green shoots, if indeed there were any developing, appear to have withered. But it’s still early in the goofy season, so let’s see what that brings.”
They said house prices could fall less than expected if inflation pressures dissipate without the household sector taking a hit and before the OCR hits 5%.
“What if the household sector holds together a little better than expected in the face of rising interest rates, for example because wage growth remains unexpectedly high? While a more robust household sector could support house prices, if this prevents household demand from softening as much as needed for CPI inflation to fall fast enough, OCR will need to rise more than otherwise. way. That would contain any positive influence on the housing market.”
In September, the Real Estate Institute price index had fallen 11% from its peak, returning to April 2021 levels.
Economist Miles Workman said some regions were further along in their price slowdown than others. Wellington prices are down nearly 20% from their peak. had a 48% increase in prices, but softer population growth than most.
“So it makes sense that the price declines have been more severe. But this also suggests that prices in Wellington are likely to be among the first to find a floor.
“The first evidence that this may be happening may come from an uptrend in seasonally adjusted home sales (as sales tend to lead prices by around three months). However, the data here can be very volatile from month to month.”
ANZ economists said that due to an apparent lack of “forced selling”, it appeared that the price correction remained orderly. “That could change, of course, but it is likely to translate into a shock to household income, namely a sharp rise in unemployment. In the meantime, a calm and orderly, but significant, downward adjustment from such a difficult starting point is the best we can hope for from a housing affordability perspective.”