Westpac last week predicted that house prices would decline by 15 per cent over the next two years, striking the gloomiest note we've seen so far from the major banks.
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"If house prices do fall 15 per cent in two years and you then add inflation of 6.9 per cent and maybe 4 per cent after that, you then get a decline in real terms of 20 to 25 per cent," says Alexander.
"Quite a strong correction is under way. It will eventually improve the situation quite a lot for the newer home buyers."
On the flip side, this drop in house prices won't be good news for everyone. Alexander says that property developers and house flippers will be among those most nervous about the decline in house prices.
"The most at risk would probably be the highly geared, inexperienced and over-optimistic property developers as well as some short-term property traders as well," Alexander says.
The economist says that current owner-occupiers need not be too concerned about a decline in house prices, given that the market tends to be cyclical.
"For some first-home buyers, their net worth may have gone down, but very few would have purchased with the intention of selling within two to four years. So for most people, it really doesn't matter all that much."
The factor that will, however, impact owner-occupiers is rising interest rates, which have been driven by the Reserve Bank's monetary policy.
Despite the steady lift in rates, Alexander doesn't believe it's reached the stage where many New Zealanders will be at risk of losing their homes.
"When homeowners borrow money in the first place, the bank would have required them to show that they could service an interest rate of at 6.5 per cent," says Alexander, explaining that the banks have now increased this to 7.35 per cent.
What this means is that most homeowners should be able to service their mortgages at current rates, provided they adjust their spending accordingly.
"It does mean they'll have to cut back in spending in other areas, such as domestic and international travel and eating out. However, two years down the track when we're into 2024, there's a good chance that interest rates could be falling."
Alexander says that shifting mortgage rates are essentially a "budgeting exercise", which families need to navigate through as they change over time.
Asked whether the current downward trend in property prices looked set to continue for the longer term, Alexander pointed to data showing that the figures were starting to stabilise.
"I can already see some of the indicators I look at in my five-monthly surveys becoming less negative. They're still negative. They're still showing the market going down, but the degree of negativity is just starting to pull back a little bit. Some investors are starting to look for bargains and first-home buyers are also sniffing around.
"Housing markets move in cycles. We are currently in the downward leg of the cycle. I think things are largely going to bottom out in the first half of 2023, after which we could have a relatively flat market for a number of years."
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