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Real house price falls predicted from next year

Jarden analysts expect house prices to fall by 6% next year and 3% in 2023.

Saturday, August 14th 2021, 10:34AM

Grant Swanepoel and Luan Nguyen gave this prediction ahead of Fletcher Building's full year’s results due on August 18.

Fletcher Building's main earnings are from building new houses across the country and the industry is adding 32,000 new homes a year, which is close to capacity.

Total industry construction is 4,000 higher when second homes and knockdown rebuilds are added. 

The Jarden analysts say house price changes are the key factor influencing house construction, the others being GDP growth, supply-demand balance and Government incentives.

Swanepoel and Nguyen say house price drops will come because new homeowner resources are stretched.

This is because mortgage payments – as a percentage of household expenditure – have recently topped 28%, pushing past the 26% 12-year average.

In addition there is limited scope for material rent increases as rent – as a percentage of household expenditure – has hit a new high.

Renters have also been somewhat stuck by a lack of supply which is starting to ease. And rising mortgage interest rates are pushing both new homeowner and investor models into duress.

“There is a view, house prices don’t go down – mainly backed up by evidence from the mid-2000s when house prices defied interest rate increases and continued to rise.

“However, house prices can fall, as happened in the 1970s when real prices fell almost 40% over the decade and for a few shorter periods through to 2000.

“In the mid-2000s, despite sharp hikes in mortgage rates, house prices did not fall because there was a period of housing re-rating as an asset class. Another re-rating is unlikely to be available in this current cycle,” say Swanepoel and Nguyen

Jarden’s blended house price analysis shows house prices sitting at $746,192 by the end of December next year, down 6% on the $792,574 forecast for the end of this year.

“This price point is about 10% overbought from a new homeowner’s perspective and 16% from an investor standpoint,” say the analysts.

“New housing supply shortages will continue to ease from 2023 but remain elevated for many years.”

Swanepoel and Nguyen anticipate a sharp pullback in volumes next year and 2023, although moderated by the existing momentum and Government interventions to improve the market undersupply.

Their analysis shows house builds will continue at the top quartile for the next two years before drifting toward mid-cycle by the mid-2020s and then into third quartile by the early 2030s.

Tags: house prices housing market Jarden property values

« Housing market: Still hot but coolingFall in real house prices expected by Reserve Bank »

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Lender Flt 1yr 2yr 3yr
AIA 4.55 2.85 3.25 3.55
ANZ 4.44 ▲3.39 ▲3.85 ▲4.09
ANZ Blueprint to Build 1.68 - - -
ANZ Special - ▲2.79 ▲3.25 ▲3.49
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.85 3.25 3.55
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - 2.85 3.25 3.55
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 3.45 3.85 4.15
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 ▲2.45 ▲2.85 ▲3.15
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 ▲3.80 ▲4.00 4.34
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 ▲2.95 ▲3.15 3.49
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.99 3.39 3.59
SBS Bank Special - 2.49 2.89 3.09
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲2.65 - -
The Co-operative Bank - Owner Occ 4.40 ▲2.85 ▲3.25 ▲3.49
The Co-operative Bank - Standard 4.40 ▲3.35 ▲3.75 ▲3.99
TSB Bank 5.34 3.35 3.75 4.05
TSB Special 4.54 2.55 2.95 3.25
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 3.45 3.85 4.09
Westpac - Offset 4.59 - - -
Westpac Special - 2.85 3.25 3.49
Median 4.54 2.95 3.25 3.49

Last updated: 29 September 2021 8:51am

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