It’s been a rocky 18 months for the New Zealand property market and it looks like the slide in prices, which started back in November 2021, still has some way to run. A drop of almost 20 per cent, however, doesn’t mean that the market is no longer showing signs of “irrational exuberance” – nor does it mean that house prices have suddenly become affordable.
Property prices in the antipodean country have plunged by more than 17 per cent since the winter of 2021. Statistics New Zealand, the country’s official data agency, says such a sharp fall in prices has erased about NZ$6 billion (€3.4 billion) in household wealth.
It means that the country has slid to the bottom of most global house price indices. Knight Frank’s latest index of luxury homes, for the first quarter of 2023, had three New Zealand cities ranked at the bottom of the index, with prices for prime property in Wellington falling by more than 27 per cent over the past year, followed by Auckland (-17 per cent) and Christchurch (-15.3 per cent).
Now the economy has slipped into recession, and economic forecaster Oxford Economics says that the rise in interest rates will continue to weigh on house prices in the coming months. It expects prices to drop further before they hit a trough in the third quarter of 2023, for a total decline of about 21 per cent.
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Exuberant growth
It wasn’t so long ago that the market was roaring ahead on the back of years of double-digit growth. Back in the summer of 2021, for example, Auckland had a median price of NZ$1.15 million (€680,963), according to the Real Estate Institute of New Zealand (Reinz), with a national median price of NZ$820,000 (€485,556). This compared with a median price of €392,500 for Dublin and €265,000, nationally, at the time.
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Such steep price growth, of almost 50 per cent since the pandemic, saw the government step in to try to quell price growth. Tightening mortgage lending rules was one of the actions taken, while the Central Bank was also given a specific remit of taking into account potential impact on house price growth when setting interest rates.
But it seems that it has been the sharp rise in interest rates that has dealt if not quite a killer, then a knock-out blow to the market.
Last month, Reinz chief executive Jen Baird said: “It’s clear that current high interest rates combined with a tight economy are still influencing the market as buyers continue to act with caution while economic headwinds play out.”
Indeed interest rates reached 5.5 per cent in May of this year – the highest rate since December 2008 – meaning that affordability for new homebuyers has narrowed, while existing homeowners face a jump in their monthly mortgage repayments.
As Paul Sissons, a sales agent with New Zealand Sotheby’s International Realty, notes, rates were just 2 per cent some 24 months ago, so the hike is certainly going to cause some buyers some concern.
“We may see some trading down,” he says.
Pressure on households has definitely increased; figures from Oxford Economics show that the share of disposable income the average mortgage holder spends on interest payments has more than doubled since 2021 to 22 per cent.
Still expensive
But despite the decline in house prices, housing has not suddenly become affordable. The national median price has dropped back to NZ$780,000, for example, but this is still a hefty €440,000 or so. And in Auckland, it’s at NZ$995,000 (€560,000), according to latest figures for May.
As Sissons notes, the decline has come after an unusually steep increase post Covid.
“So prices are still above pre-pandemic levels,” he says.
Meanwhile, there are still signs of heady prices; Sissons recently sold a rare boatshed in Auckland at a record price of more than NZ$2 million at auction – despite the fact that it has neither a bathroom nor a bedroom. The last sale of a similar unit was NZ$1.35 million back in August 2022. This unit was marketed as a “once-in-a-lifetime opportunity”, to acquire a place to “paint or write, a peaceful retreat to relax and reset, or dream party and entertaining spot”.
Cheap at the price.
