How economists reacted to home prices falling $322 a day

Data from the Real Estate Institute get out today Home prices fell by $322 a day last month, according to experts, meeting expectations for sharp declines this year and next.

Satish Ranchhod, senior economist at Westpac, said:
Today’s data accurately meet the economic team’s forecast, he said.

“Today’s results were in line with our expectations. Looking ahead, we expect prices to fall by a total of 15% in 2022 and 2023 combined. Such declines are accompanied by an increase in the average number of consecutive unsold days, and there is also anecdotal evidence of an increase in the number of unsold homes,” he said.

“Corruption in the housing market continued in August. House prices fell another 1.4%. This is the ninth straight month of decline. House prices are now down 9% from their peak in November 2021.” he wrote in response to the REINZ figure.

Prices continue to fall, especially in Wellington and Auckland. Prices in the capital fell 3.6% in August alone and are now down 17% in total.

Similarly, Auckland prices have fallen 14% since November 2021, he said.

The decline in other regions has been less severe, with prices only down about 5% from previous peaks, Ranchhod said.

ANZ also said today’s data supports the economic team’s view.

“While we have long argued for the fact that a strong household sector and strong wage growth will lead to some bottoming out in the housing market as interest rates rise, we believe that a high starting point and broader economic risks are likely to continue. When you think about it, where that floor is and how strong it is is very uncertain.”

The buoyancy of the market largely depends on how many people decide this is a window of opportunity, but the overall trend suggests people think there are better times to buy.

Looking to 2023, it all depends on how much traction the rising OCR is gaining.

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

“Importantly, if green sprouts appear on housing over the next few months, the OCR hike so far is an early sign that the RBNZ is not getting the traction it needs to control CPI inflation. There is a possibility.”

If wage pressures maintain a similar atmosphere, interest rates are likely to be higher than currently forecast, offsetting any tailwinds for housing that higher wages may bring.

Kiwibank also said today’s data supported expectations. “The housing market continues to be largely one-sided,” said senior economist Jeremy Couchman.

“It’s hard to find good news among the latest housing market data. But we tried. .REINZ recorded 4891 sales in August, which was nearly 8.0 percent higher than in July on a seasonally adjusted basis.”

Compared to August of last year, sales were down 18%.

Importantly, the year-on-year comparison of August-September sales is distorted by last year’s Delta Lockdown, which was largely centered on Auckland.

Nonetheless, sales are a positive indicator of house price action, having loosely led house price growth for about six months.

“We forecast a 13% drop in house prices by the end of the year. A dramatic drop is certain, but a trough of 13% will only bring the house price index back to the levels seen at the beginning of 2021. Beginning next year, we’ll see a gradual recovery in prices — gradual as substantial new housing supply far outstrips new housing demand,” Couchman wrote.

ASB economist Nathaniel Kiel said there was “conclusive evidence” that the market was at a tipping point, with activity indicators looking decidedly mixed.

“Prices continue to fall at a relatively orderly pace, with Wellington and Auckland performing the worst and Canterbury holding up relatively well.

“The usual activity indicators we look for to get a signal about the direction of movement also looked mixed this month: clear, decisive signs that the market may be turning. All in all, there’s not much to shake us, our projection of a 12% peak-to-trough decline in home prices across the country during this cycle.”