How economists reacted to house prices falling $322 a day

REINZ data shows house prices falling $322 a day last month. Photo / NZME

Real Estate Institute data out today showing house prices fell $322 a day in the last month fulfilled expectations of the plunge this year and next, experts said.

Satish Ranchhod, Westpac senior economist, said today's data precisely fulfilled the economic team's forecasts.

"Today's result is bang-on our forecast. Looking ahead, we expect that prices will fall by a total of 15 per cent over 2022 and 2023 combined. That implies continued modest declines over the coming months. Such declines would be consistent with the continued creep higher in the average number of days to sell, as well as anecdotes about an increasing number of unsold homes," he said.

"The rot in the housing market continued in August. House prices fell by another 1.4 per cent. That is the ninth monthly fall in a row. House prices have now fallen 9 per cent from their peaks in November 2021," he wrote in reaction to the REINZ figures.

The drop in prices continues to be heavily centred on Wellington and Auckland. Prices in the Capital were down 3.6 per cent in August alone and have now fallen by a total of 17 per cent.

Similarly, prices in Auckland have dropped 14 per cent since November 2021, he said.

The drop in other regions has been much less stark, with prices only down around 5 per cent from their earlier peaks, Ranchhod noted.

ANZ also said today's data confirmed its economic team's view.

"We've been drumming on for a long time now about the fact that a robust household sector and strong wage growth will put some kind of floor under the housing market as higher interest rates bite – but given the high starting point and broader economic risk profile, where that floor lies, and how strong it is, is highly uncertain."

Market buoyancy would be very dependent on how many people decide this is a window of opportunity but the overall trend suggests people still think there will be a better time to buy.

Looking into 2023, it'll all come down to how much traction the rising OCR is getting.

The upcoming seasonal upswing with listings and sales both typically rising in spring should provide a good test of that, ANZ said.

"Importantly, if green shoots do appear in housing over coming months, that could be an early indicator that OCR hikes to date aren't getting the traction the RBNZ needs to get CPI inflation under control."

If wage pressures maintain a similar vibe, higher interest rates than we are currently forecasting will be all the more likely – offsetting any housing tailwinds that rising wages might provide.

Kiwibank also said today's data confirmed expectations. Jeremy Couchman, senior economist, wrote: "The run of play in the housing market continues to be largely in one direction.

"It's hard to find good news from within the latest housing market data. But we did try. For instance, there were early signs that the trough in house prices might be on the horizon. The 4891 sales recorded by REINZ in August were almost 8 per cent up compared to July seasonally adjusted."

Compared to last August, sales were 18 per cent lower.

Importantly, annual comparisons of sales from August to September would be distorted by last year delta lockdowns – mostly centred on Auckland.

Nevertheless, sales were a forward indicator of house price movements, loosely leading house price growth by around six months.

"We are forecasting house prices to be 13 per cent lower by year end. A dramatic fall for sure. But a 13 per cent trough would only take the House Price Index back to levels seen at the start of 2021. From early next year we see a gradual recovery in prices. Gradual because significant new housing supply is far outstripping new housing demand," Couchman wrote.

ASB economist Nathaniel Keall said there's no "smoking gun" to say the market is on the turn with activity measures looking decidedly mixed.

"Prices continue to ease at a relatively orderly pace, with the ugliest numbers coming out of Wellington and Auckland, while Canterbury continues to hold up comparatively well.

"The usual activity metrics we look to for a signal on the direction of travel were also looking mixed this month, meaning there's no clear smoking gun for signs the market may be on the turn. All-up, there's not much to sway us from our forecast of a 12 per cent peak-to-trough fall in nationwide house prices this cycle."