NZ House Prices On The Decline: Why Buyers Are Wary Of Overpaying?

Tuesday, 14 June 2022, 4:11 pm
Press Release: Kalkine

New Zealand’s property market has been a source of major uncertainty in the recent past, with housing activity showing rapid changes. After thriving for close to two years during the pandemic, the property market is now experiencing a slowdown. Buyers have been exiting the market as high prices and rising interest rates bring fresh affordability concerns.

Fear of missing out (FOMO), which had once dominated homebuyers’ minds, has now been replaced with the fear of overpaying (FOOP). Both these factors have been integral in shaping the housing market dynamics in New Zealand. The current climate has instilled a feeling of excessive payment in buyers trying to cope with a highly volatile market. Sellers are also bringing fewer properties into the market as global headwinds create ambiguity.

Increasing interest rates, fears of a recession kicking in, geopolitical tensions and supply-chain disruptions are some factors that are driving uncertainty in the property market. Meanwhile, resourcing issues in construction and widespread reporting of house price falls seem to be waning buyers’ interest in the housing market.

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Property prices going south

The declining property prices could be blamed for dwindling buyers’ interest in the housing market. Demand for housing has dropped quickly, especially after interest rate hikes gained momentum. Meanwhile, lesser demand for housing has spurred a downward trend in housing prices over recent months.

The recent data from CoreLogic suggests that national property prices have fallen by 0.8% in May after declining by the same magnitude in April. Experts believe that persistent declines in Wellington and Dunedin fuelled the national drop in housing prices as their annual growth rate has plummeted to a single digit. However, Hamilton’s annual price growth hangs on a double-digit growth rate of 10%. Meanwhile, Christchurch and Auckland observed a sharp annual change in house price growth in May.

Speculations are rife that the slowdown in the housing market could persist until the middle of next year, when the bulk of the property price decline will be over. Beyond that, prices are more likely to remain steady.

Slower sales leading the price decline

A sharp decline in home sales across the country also reflects buyers’ reducing participation in the property market. According to the Real Estate Institute of New Zealand (REINZ), residential property sales dropped by 35.2% annually in April 2022.

April sales figures further suggest that properties have stayed on the market for a long. Within April itself, residential property sales declined by 29.3%. Among regions, Marlborough recorded the highest drop in sales of 53.6%, while sales in Auckland dropped by 41.3% annually.

Moreover, sellers have become reluctant to put their property on the market with decreasing prices. Concerns loom that the decline in property sales could become more pronounced following additional interest rate hikes by the central bank.

What to expect from property prices?

Big banks have predicted double-digit falls in property prices in the next year, pointing to the biggest drop in over 40 years. As buyers find it difficult to manage living expenses, taking out a mortgage in the current rising interest rate environment could become an additional burden.

Thus, many buyers are opting out of the property market while choosing alternatives like staying on rent. Besides, second or third-time property buyers are delaying large purchases to avoid falling into a hefty debt. This has inadvertently prompted a decline in the prices of property bought at painfully high prices earlier.

Consequently, many first-time buyers are locked in a market where properties are swiftly losing their value, and monthly mortgage repayments are also rising. Most of these buyers have financed their dream homes during the near-zero interest rate era and are now unable to fetch equal value for their property.

A potential drop in housing prices could cause more turmoil for homebuyers, with mortgage rates being reset over the coming months. Additionally, an increased supply of new housing could further push down the value of existing homes. Thus, buyers still largely excluded from the market might see some relief from future price drops.

Additionally, increasing incomes and accumulating household savings could provide some respite to the economy from property market woes. However, the slowdown in housing prices is likely to be most impactful on those already paying off mortgages. Overall, a mix of these polarising factors could result in a soft landing for the market.

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