Westpac has forecast house prices will drop by 15 per cent in the next two years.
It is now taking a far more bearish stand than it had previously and is gloomier than other economists forecast of a 10 per cent price drop.
Michael Gordon, the acting chief economist, said in Westpac Home Truths: "We've downgraded our house price forecast to a 15 per cent decline over two years. We correctly identified that house prices would fall as mortgage rates rose from their lows. But mortgage rates have now gone well beyond what we expected, as expectations of Official Cash Rate hikes have ramped up."
Previously, Westpac forecast a 10 per cent price drop. Today, Gordon got gloomier.
"We think that the market is overcooked in that regard, but we also recognise that it's likely to remain that way for a while. That will mean further downward pressure on house prices this year," he says.
A 15 per cent drop seemed very large compared to history, but to put it in context, it would only take average prices back to where they were at the start of 2021, Gordon said.
That just illustrates the ferocity of the rise in house prices during what turned out to be a brief period of super-low interest rates.
"We should note that our forecast is based on the CoreLogic house price index, which is a quarterly average. A higher-frequency measure like the REINZ monthly house price index will see a larger peak-to-trough decline than this."
Also, it's a forecast of the national average; we don't forecast house prices by region, but obviously there are some regions that will see a bigger than average decline, and indeed are already on track to do so.
The REINZ index shows that prices have already fallen by 4.7 per cent in the four months to March, with the downturn now spread widely across the country.
The April figures are expected to be released next week, but other indicators such as listings on realestate.co.nz, and the Auckland sales figures from Barfoot & Thompson, suggest that the market remained in decline. Both sellers and buyers are stepping back from the market, but the latter are stepping back faster, which means that the stock of unsold homes has risen to a three-year high.
Economists - including those at Treasury and the Reserve Bank - have been forecasting house price falls for some time based on a range of factors including record levels of new building, low immigration, tightened investor and lending regulations and rising interest rates.
Peter Thompson, Barfoot & Thompson, said yesterday the most Auckland house prices had fallen in any one time was around 8.5 per cent later last century when the sharemarket crash hit.
In his commentary out this week, he said the market now favoured buyers and he encouraged sellers to become more realistic.
Auckland's average house sale price has dropped from $1.23 million to $1.21m and the median from $1.81m to $1.41m, the agency said on Tuesday.
The amount of property available for the agency to sell from March to April also jumped from 4816 to 4845.
"The decline in Auckland residential property prices that has been predicted following the rise in the rate of inflation and mortgage interest rates has finally shown up in sales figures," Thompson said this week.
"The median and average sales prices in April fell back when compared to those in March, and those for the previous three months, but remained well ahead of the prices of property 12 months ago," he said.
Adrian Orr, Reserve Bank governor, says house prices were still 5-20 per cent above sustainable levels. The bank said a quarter of the people who had bought houses in the past 12 months were likely to be in some form of stress with interest rates at current levels.