The slashing of interest rates that accompanied Covid-19 restrictions in 2020 and 2021 led to the country’s average house price rising by a whopping 41 per cent over the 19 months from a trough in August 2020 to peak in March 2022.
Goodall noted how the rate of house price falls sped up and then slowed down last year, as expectations around interest rate hikes changed.
The rate of house price falls accelerated around the middle of 2022, as the Reserve Bank lifted the official cash rate (OCR), and it became more difficult to service mortgage debt.
Then, during the last three months of 2022, people regained some confidence, as they suspected the end of the Reserve Bank’s tightening cycle was in sight, or the Reserve Bank was nearly done hiking the OCR.
Come late 2022, that relative optimism was gone, as inflation proved more persistent than expected and the Reserve Bank forecast much more aggressive OCR hikes at the expense of the economy more generally.
Hence, Goodall didn’t expect the slowdown in house price falls in December to signal the bottom of the downturn “by any means”.
He warned that until interest rates stabilise, we should be prepared to see further declines in house values this year.
“Encouragingly for the Reserve Bank and its inflation outlook, there have been some signs that consumers in New Zealand have started to rein in their spending with comparisons to the previous year’s Christmas retail figures showing only a minor lift, which could be attributed to an increase in the cost of goods rather than people buying more things,” Goodall said.
“The future for the property market following the expected peak of the OCR of 5.5 per cent in April/May and hopeful taming of inflation, then rests on the economic health of the country.
“If the recession hits, but is minor and with limited job losses, interest rates may plateau. If the economy is hit worse than expected, we may see interest rates start to fall as the Reserve Bank sees a need to stimulate activity.”
Looking at the December figures more closely, there were some notable differences both across and within regions.
Wellington experienced the greatest annual drop in prices of 16.9 per cent. But on the upside for homeowners, the monthly rate of decline slowed to 0.3 per cent.
Prices in Auckland, Hamilton and Tauranga fell by between 5.1 and 5.7 per cent in the year, with prices in Auckland sliding by 0.3 per cent in the month and those in Tauranga rising very slightly.
Despite prices in Christchurch falling 0.4 per cent in the month, the city remained the most robust of the centres when analysing prices over a year.
Contrary to Christchurch’s 1 per cent annual rise, prices in Dunedin were down 9.5 per cent. Goodall said prices looked to be finding a floor in Dunedin.
As for the country’s smaller urban areas, Palmerston North experienced the greatest annual decline in prices of 12.1 per cent, followed by Napier (9.5 per cent), Whanganui (8.5 per cent), Hastings (8.4 per cent), Nelson (6.9 per cent), Rotorua (2.8 per cent), and Invercargill and Whangarei (1.5 per cent).
Prices in Queenstown were up 6.6 per cent over the year, as were those in New Plymouth (2.7 per cent) and Gisborne (0.2 per cent).
