Another month of slumping New Zealand house prices will do little to bolster the hopes of first home buyers under strain from sharp increases in living costs and interest rates, analysts say.
The national average home value was 13.3% lower in April than in the same month of 2022 and sits at NZ$902,501, according to figures from the valuation company QV. But the pace of the market’s drop has slowed since the start of the year, and property prices are still 22% higher than they were before the pandemic.
New Zealand’s runaway property market has for years created a crisis of inequality and deprivation – while proving an investor’s paradise that some thought would yield ever-increasing returns. At the peak of the boom, houses cost 10 times the median income, with a 43% increase during the first two years of the pandemic.
But 2022 saw some of the biggest drops in the market since the global financial crisis, paired with interest rates pushed up by the Reserve Bank to curb a 30-year inflation high. The latest dips would scare both investors and those hoping to put a foot on the property ladder, analysts said.
“The increase in interest rates on top of the increases in living costs means that even people who were previously OK are now going to find themselves being poor,” said Shamubeel Eaqub, an economist with the consultancy firm Sense Partners. “They’ll have to make choices about what they put into their supermarket baskets.”
Property listings in April reached a historic low and buyers were scarce, QV said. Quarterly prices in Auckland fell 4.4% while Christchurch and the capital, Wellington, both recorded dips of 3.7%.
But that did not mean housing was actually more affordable, said Eaqub.
“We’re in this kind of standoff where house prices have fallen, but they haven’t fallen sufficiently relative to the income that’s available for renters and first home buyers, or the amount of money they’re able to borrow,” he said. At the peak of the housing boom, house prices were 10 times the median income.
Simon Petersen, a QV spokesperson, said the bottom of the market slide was not yet visible. But a Reserve Bank proposal to ease mortgage loan-to-value ratio restrictions and burgeoning numbers of people arriving in New Zealand after the long border closure during the pandemic were among factors boosting the demand for homes, Petersen added.
The plunging prices follow measures unveiled by the Labour government in 2021 to curb a boom fuelled by years of low interest rates and cheap finance.
The abrupt reversal of prices and rates has left New Zealand’s housing market more over-leveraged than in many comparable countries, prompting analysts to declare the country a “canary in the coalmine” for a property crash.
“Right now the talk about negative equity, where people are going to owe more to the bank than their homes could be sold for, is limited to those who bought right at the peak,” said Michael Rehm, a senior lecturer in property at the University of Auckland. “But if things continue for much further, the net that’s catching people in negative equity is going to grow.”
Homeowners struggling to pay their mortgages would not return to renting but would instead dramatically cut back on other spending that fuelled the economy, both analysts said.
Across New Zealand, only Queenstown – known as a playground for tourists and the ultra-wealthy, where housing affordability has long been a crisis for workers – reported an increase in property values of 2.8% for the quarter to April.
