Heather du Plessis-Allan: Nothing feels like a bargain as recession looms

Ads scream “final price reduction” and “must be sold”, but whatever you pay now, it will seem too much in a few months.

OPINION

We’re trying to buy a house to relocate to Auckland. It’s been an eye-opener. It’s dire out there. Dire enough to say it’s hard to see Labour winning the next election at this rate.

Houses aren’t selling. We’re watching Auckland properties on Trade Me go to auction, fail to sell, pop up on the site days later. This time they have a listed price. But they still fail to sell. They drop $200,000 off the price and fail to sell. They drop another $200,000 and still sit there for weeks.

Ads scream “final price reduction” and “must be sold”.

House prices are dropping fast. In some parts of the country they’ve already fallen 20 per cent from their peak. A real estate agent told us about a couple who bought a property for $1.7 million-odd, spent $40,000 getting a new roof and then had to sell. They sold for around $1.3m.

Vendors seem increasingly nervous. Every other listing says the sellers are “motivated” or “must sell” or “moving on”. Every week that they still own the house is a week they’re losing value. The owners of almost every property we’ve looked at have already bought something else. But, they’re struggling to get rid of theirs.

The problem is that buyers are nervous too.

It’s hard to know how much to spend. Nothing feels like a bargain. Whatever you pay now, it will seem too much in a few months.

And it’s hard to know if you’ll be able to afford it. Mortgage interest rates are rising fast. One-year fixed rates had a 2 in front of them a year ago. Now they start with a 5. Predictions are they could soon have a 7 in front of them.

We were all banking on this being a short-lived problem. Economists thought things would improve early next year. Then it became mid-next year.

After last week’s inflation number, it now looks like it’s going to be late next year.

The 7.2 per cent inflation number spooked many of us. It was quite a bit higher than expected. Coming off 7.3 per cent the previous quarter, it showed inflation isn’t budging.

Worse, it told us inflation is now bedded in here. Domestic inflation went up from 6.3 per cent to 6.6 per cent, the highest ever recorded. The Government can’t keep blaming the war in Ukraine and supply chain issues for our rising prices. Even if global problems clear up tomorrow, our prices will keep climbing.

Last week’s number means the Reserve Bank will now have to hike the official cash rate higher than we thought. The predictions of a 3.5 per cent OCR peak at the start of this year are now 5.25 per cent.

It means banks will hike their mortgage rates higher too, which means house prices will fall further.

ANZ economists just updated their forecast. They thought house prices would fall 15 per cent from the peak. They’re now picking 18 per cent. That’ll wipe out almost all the house price rises during 2020 and 2021.

It also means house prices won’t start improving until later next year.

That’ll flow through the economy. Stretched mortgage-holders spend less money. Property owners who feel less wealthy spend less money.

A recession is now more likely.

The timing is awful for Labour. It looks like we’ll still be dealing with the worst of this come election time.

Voters don’t reward incumbent governments when they feel poor. Already, some will feel poor on paper as they watch their property value drop. Already, some feel poor in reality as they fork out more and more for rising mortgage rates. And shortly, many more will feel poor as nearly half the country’s mortgages roll over in the next few months and the mortgage interest payments double or triple.

From co-governance to incompetence there is a lot denting Labour’s chances at the next election, but this is probably the worst: homeowners’ mild sense of panic at rising mortgage rates and falling house prices.

Heather du Plessis-Allan Drive, Newstalk ZB, 4pm-7pm, weekdays.