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New Zealand banks predict 20% drop in house prices next year | New Zealand

New Zealand property prices are set to fall by up to 20% next year – the biggest drop since the 1970s – two of the biggest banks have predicted, bringing prices back to where they were a little over a year ago.

For years, the country has been plagued by an out of control real estate market. The cities of Wellington and Auckland have a few of the least affordable real estate markets in the worldand homeownership rates have been falling since the early 1990s in all age groups, but especially for those in their twenties and thirties.

Now New Zealand is in the midst of some of the biggest declines and downturns since the aftermath of the global financial crisis. The number of homes sold in April was down 30% month-on-month previously, according to the Real Estate Institute and, according to Westpac, prices fell 1.1% in April – now down 5% from their November highs.

Price drops and supply increases will be good news for potential buyers, but recent first-time homebuyers who have spent big now to own a less valuable asset, and rising interest rates interest due to inflation, could make paying off a heavy mortgage more difficult, as a cost of living crisis also takes hold.

Two of the country’s largest banks, Westpac and ASB, now have both sounded the alarm on dramatic declines in house prices over the next year, with SBA economists citing the “big three housing villains” as the reason for the price drop: tighter credit conditions, interest rates higher mortgages and an increased supply of new housing.

“However, the bulk of the impact on house prices from soaring mortgage rates is yet to come. About 60% of all mortgage rates will be reset over the next 12 months,” ASB said.

Interest rates could nearly double for some households, SBA economists said, but they do not expect the change to lead to widespread mortgage distress or forced sales. “But the rate shock will siphon a bunch of extra disposable income out of Kiwis’ wallets this year, hitting discretionary retail spending hard.”

Westpac’s acting chief economist, Michael Gordon, says Stuff news site that if 20% looked like a big drop, it would only bring prices back to where they were at the start of 2021. Median home prices are up 31% in the year to July 2021.

“It illustrates the ferocity of rising house prices during what turned out to be a brief period of extremely low interest rates,” he said.

Gordon added that rising incomes and rising household savings would mitigate a downturn. “The downturn we anticipate appears to be a soft landing rather than a crash.”

New Zealand banks predict 20% drop in house prices next year | New Zealand

Source link New Zealand banks predict 20% drop in house prices next year | New Zealand

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