Vivek Maishra

BENGALURU, (Reuters) – New Zealand’s housing prices will fall 9.0% in the coming year due to aggressive interest rate increases. This is despite a worsening cost-of-living crisis and blazing housing markets.

As investors cash in on low interest rates and easy access to loans, house prices have almost doubled over the past seven years. It has increased homelessness and fueled inequality making New Zealand the most expensive housing market in developed countries.

While house prices are starting to fall from their peak, they still have a long way to go before returning to pre-pandemic levels.

This year’s 9% drop is more than what was predicted by Reuters in a poll of 11 analysts covering the property market. It is also higher than the 0.8% decline that was predicted in a February poll.

In 2023, house prices will fall by 2.0%.

New Zealand’s housing costs are a major national problem. They have deep roots. “Ultimately, it boils down the fact that new supply of housing hasn’t been responsive sufficient to periods when there is rising housing demand,” explained Jeremy Couchman from Kiwibank.

Couchman predicts that house prices will drop by a little over 10% in this “short, sharp” correction.

Although this was a slow process, it may not be enough to provide relief for first-time homebuyers. After prices soared by more than 250% (roughly four times the annual average rise across OECD countries), the drops in price might prove too little.

Since October 2013, the Reserve Bank of New Zealand has raised interest rates by 175 basis points. On Wednesday, it indicated that there would be more.

The company expects that home prices will fall by 20% to 30% before reaching sustainable levels.

ANZ and Macquarie Bank as well as Infometrics and Real Estate Institute of New Zealand would need to see average house prices fall by between 30-50% – about the level they dropped after the 1973 oil shock – to ensure housing affordability.

Although lower prices for houses would benefit the government’s affordability targets, this would not be an option for first-time homebuyers who will have to face rising interest rates and a steeper repayments.

Ankur Dakwale (research analyst Bayleys Realty Group) stated, “Increasing interest rates will hamper the ability to service mortgages…lending restriction, including minimum deposit will hurt first time homebuyers who haven’t got support from the bank mum or dad to raise the initial deposits.”

The median answer to a question about the New Zealand housing market was 9, which is on a scale from 1-10. It ranges from very cheap to highly expensive. It was 10 for Auckland.

However, it is not common for prices to drop this year. REINZ forecasts house prices rising by 5.0%, while Infometrics projects that they will increase by 4.1%.

REINZ property analyst David Shaw stated that buyers’ sentiment has changed to fear of losing out and fear of overpaying. This all suppresses house price rises.

“But, even a dramatic slowdown of house price rises from the previous year will still leave modest increases.”

(For more stories about the Reuters quarterly housing market polls, click here: