Economists don't expect housing market declines to have run their full course yet. Photo / NZME
Economists don't expect housing market declines to have run their full course yet. Photo / NZME
ANALYSIS
National house sale volumes hitting a record-breaking trough last month is not the end of it, economists say.
But the fall is coming around the time nearly half of New Zealander mortgage holders are resetting at scorchingly high interest rates.
Expect worse, particularly when it comes to price drops,economists advise.
They were today reacting to new REINZ data showing volumes slumping to the lowest since it began keeping records in 1992: only 2759 NZ homes sold last month of which just 943 were in Auckland.
Nearly half of New Zealand’s mortgage debt is due to be refixed - from last October to this September. A one-year fixed term rate is now over 7 per cent for a standard rate and around 6.5 per cent for those with 20 per cent equity.
Westpac acting chief economist Michael Gordon today forecasts a further 7 per cent price drop.
“We expect further price declines in the coming months,” he said in a research note.
The housing market continued to soften at the start of this year. House sales remain at very low levels and low turnover is slowing the pace of the market’s adjustment to the reality of higher mortgage rates, Gordon said.
January is typically the lull period of the year, which means it isn’t the best time for gauging the strength of the market. In raw terms, the number of sales was the lowest on record aside from the Covid lockdown in April 2020, he noted.
The REINZ house price index fell by 0.7 per cent in seasonally adjusted terms. Prices have been falling continuously since December 2021, and are now down by 15.4 per cent from their peak.
Mortgage rates have risen rapidly over the past year and a half. There are signs that the most popular rates - one to two-year fixed terms - may have now reached their peaks. The remaining OCR hikes expected from the Reserve Bank this year have already been baked into the market, Gordon said.
Westpac acting chief economist Michael Gordon.
“However, changes in interest rates take some time to have their full impact on house prices, and the low pace of turnover is likely slowing that process. For that reason, we’re expecting further price declines before the housing market bottoms out – around another 7 per cent over the rest of this year,” Gordon forecast.
ANZ’s Sharon Zollner and Finn Robinson today maintained their forecast for a peak-to-trough national price decline of 22 per cent, noting that prices were now more than 15 per cent below their November 2021 peak.
Today’s REINZ data was consistent with what they had expected, they said.
They do see some hope: fixed mortgage rates could be close to peaking and net migration could be contributing to more demand.
But they also noted today how rising interest rates were hitting.
“The household sector is yet to feel the full brunt of rate hikes and as the economy slows and the labour market softens, we could see a material lift in forced house sales just as households aren’t really in the mood to buy,” they wrote.
They want to see if January is just a blip or whether the market was finally finding a floor.
“Our outlook for the housing market is unchanged, we continue to expect a fall from peak to trough of a little over 20 per cent. The market should stabilise into 2024,” Kerr wrote.
The sharp fall in house prices was in part payback for the excesses in the market of 2020 and 2021, Kerr said.
The correction had not felt as bad as the record house price falls and weak activity might suggest. The labour market has remained incredibly tight and has helped to ensure mortgage holders have serviced mortgages and tenants pay the rent. The level of non-performing loans has barely registered so far, he said.
Meanwhile, NZX-listed companies are feeling the force of the market decline too.
Fletcher Building said yesterday its housing division had fared much worse, making ebit of $49m in the first half of the 2023 financial year to December 31, 2022, less than half the $112m previously. The full HY result is out tomorrow at 8.30am.
Winton Land has also been hit. January’s floods prompted it this month to downgrade its annual result, the company saying it was unable to complete most of this summer’s earthworks season because of extremely wet weather.
Instead of making the $98.9m forecast for the year to June 30, 2023, the company said it now only expects to make $72.4m to $82.4m.
“The change to guidance is driven by the delivery delay of pre-sold projects attributable to heavy January rainfall in the North Island. As a result, we have already lost 83 per cent of this summer’s earthwork season, incurred water damage to pre-ordered supplies and expect supply chain implications to the industry,” the company said on February 7.
Net profit after tax could be only $72.4m to $82.4m in the full-year result due out in August.
Nor have highly geared retirement stocks done well in the midst of the housing downturn.
