ASB expects an inflation adjusted 20% drop in house prices

The housing market downturn intensified last month. the  REINZ’s House Price Index fell another 1% and annual price growth dropped to 6.3%, down from just over 30% eight months ago.

Monday, May 16th 2022, 9:37AM 2 Comments

The median house price of $875,000 is down $50,000 from its peak in November.

ASB is expecting a 9% decline in national house prices over 2022 with falls continuing into the early part of 2023.

All told it’s about a 12% peak-to-trough decline, says Mike Jones, ASB’s senior economist. “For context, that would only take house prices back to where they were in early 2021, with prices still some 27% higher than the start of the pandemic.

In real (inflation-adjusted) terms – an increasingly relevant metric in the existing environment – Jones expect about a 20% correction, which will be the largest decline since the 1970s.

Adding to the expected fall, the 4,860 sales recorded by REINZ  in April were 35% down on last year and well below the 30-year average for an April month of 6,500.

The median number of days to sell a property across the country (seasonally adjusted) is back up to the REINZ average of 39 days.

ASB says It took two years for the housing market to build up a fierce head of steam but only a few months for the pressure to be completely released. All housing market metrics are in full retreat.

Jones says it is the credit tightening that tipped the housing market scales, but things may soon ease up a little on this front. “However, the bulk of the house price impact from the mortgage rate surge is yet to come.” About 60% of all mortgages rates will be reset over the next 12 months. “Faster and larger lifts in mortgage rates have seen us trim our house price inflation forecasts.”

ASB says a house price inflation recovery should kick in over the second half of 2023, tied to its forecasts for an upturn in net migration and flattening mortgage rates.

Meanwhile, Kiwibank says housing data points to a market paying for last year’s excesses and it’s It’s also clear it is in for a rough ride over the year ahead.

The market is adjusting to the new reality of rising housing supply, investor-related tax changes, and far tighter credit conditions.

It expects the RBNZ to deliver another 50 basis points hike later this month on the way to lifting the cash rate to 3% by year end.

Kiwibank is predicting house prices to fall about 10% this year from a 5% drop previously forecast.

However, its forecast fall in house prices is expected to be short and sharp, with modest gains in house prices forecast by the end of 2023. Its view is based on the strength of the labour market and ongoing housing shortage underpinning the housing market.

Tags: ASB

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Comments from our readers

On 19 May 2022 at 2:25 am Michael Donovan said:
Oh come on........no one can accurately 'predict' such outcomes more than a year ahead. Except me...!?

Do any of you recall that 'funny' saying from years ago?
"If you laid all the economists head-to-toe around the world......................it would be a jolly good thing!?"

Does that suggest that it would at least keep them off the streets so to speak.....for long enough for people to think over things logically?

Things such as:
What are expectations for immigration numbers to rise considerably in the next 2 to 5 years for a start?
What are the expectations for interest rates to fall enough (if at all) in the next 2 to 5 years?
What are the expectations for a major correction in overseas economies (Europe, USA, just to name a couple)?
What are the expectations or likelihood for something more serious than a recession.......like a DEPRESSION?

Those are points to consider seriously, and by using "gut-feel" if you don't have 'qualified' opinions.

Someone once asked, "What do you think of the overseas situation?"
Then answered, "It's well situated.!"

Well let me tell you what a lot of gut-feelings are right now........
Overseas situations hit us rather quickly way down here in our cosy Antipodes.

Eg: A current war in a country (where most people can't even find it on a map), and quicker than a trip on a Jumbo, the price of our fuel increased like never before......and we don't even buy ours from Russia?

Someone said to listen to the likes of economists, however, take a wee break away from the "noise", and listen to your own gut...................it works better than you may often think!
On 19 May 2022 at 8:20 am Michael Donovan said:
THE WELL-BEING BUDGET.

At this stage, let's focus on one important aspect of this budget.
Genuinely, without any bias to any current government member or party out of the 120 members.....

INFLATION is the end-resulting name of the outcome of us having printed new currency (referred to as NZD or money), and subsequently releasing it into our monetary system via our trading banks.
Simply put, this means that when you have $1 in circulation, and then add more NZ dollars, you have watered-down (devalued) the buying power of each of the sum total of NZ Dollars.

As an attempt to assist us with the effects of lockdowns since March 2020 (subsidies plus other 'assistance'), an amount of in excess of $300,000,000 (300 BILLION) was introduced into our monetary system.
This has resulted in much of our population bewildered by the announcement of seriously high INFLATION, approximately an exceeding whopping 3 times that of any year in more than the last decade..!

Now we have a budget released proudly today, which is proposed to introduce in excess of the previous $300 BILLION, an extra $300 BILLION, so is it explained clearly enough that we can expect a further DEPRECIATION of our NZD, with the resulting reference to that NZD depreciation as a repeat of references to INFLATION as consequence.

Now....remember how many people think that houses INFLATE in value.
Houses DO NOT INFLATE in value.......there are people who think so.......

However, what makes it 'appear' that houses increase (INFLATE) in value, is that we simply need more dollars to buy houses because our dollars have lost their buying power due to having been watered down by the billions of extra dollars introduced into our monetary system..!?

However, we need to remind a huge number of our population that it was announced back in 1998 by Don Brash that houses and land had been conveniently removed from our CPI (Consumer Price Index, their measure of inflation).

Note that in the above post from ASB, it refers to a 20% INFLATION-adjusted drop in house prices, which should now be more clear to those who had not yet had it all explained to them clearly enough!?

What do you see the next couple of years producing in relation to 'INFLATION' with the current budget addition of another approx $300,000,000 added into our monetary system to end up resulting in our NZD being worth even less!?

Be cautious on the 'conditioning' of your thoughts, because it makes many many people think that their houses have INFLATED (increased ) in value.
CONDITIONING can be a very powerful thing.

Maybe it could be a good idea for budding house buyers to 'stash their cash under their mattresses, and wait for those terrible mortgagee-sales to eventuate, as many thousands of those who bought their dream home late in the cycle (within the last year or so) struggle with increased mortgage payments as a result of interest rate increases?
The pending mortgagee sales are going result in a potentially huge number of homes selling for equally huge discounts, most of them selling for tens of thousands of dollars less than they were purchased for in the last year or so.

Imagine for a few seconds that you could buy a house that was purchased for say $700,000 for only $560,000 based on the ASB prediction of a 20% drop in price.
Or, if you wait for what may actually be a 40% drop in value, you could buy that same house for only $420,000...!

Sort of like the same warm, enjoyable feeling as when you dine out for a nice steak & veges meal at a restaurant which provides a 40% discount for the equivalent meal.
The original $100 meal at the discount restaurant would cost you only $60
Both equivalent meals taste the same you may think, however, somehow, the fact remains that the $60 option actually tastes much better, especially when you can have desert plus a big cold beer or a nice wine, and still walk out with change in your pocket.

Applying that analytical analysis to your discounted house, what sort of second car for mum could you buy, plus a trailer boat for yourself and still have approx a quarter of a million dollars (savings) in your pocket...!?
A dollar saved is a dollar made!

It can be very sad that so many thousands of people "Buy on Emotion-----and Justify With Logic afterwards."

Of course, we need to add to the above the expectations for world markets as referred to in my original post above.
What if there is a major world sharemarket correction?

So, in this example, you would hopefully have become wise enough to buy that second car and the trailer boat at more like the discounted house rate by showing strength of patience.

One of the most difficult things is picking the absolute top, or bottom of any market.
Patience, plus use of your gut feel, both work.
Plus a better and informed understanding of the meaning of the words INFLATION-----and CONDITIONING

Time will tell if this "story" is anywhere near accurate.
Watch this space.

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