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Property prices might be rocky right now – but experts say a repeat of GFC numbers is unlikely
The New Zealand housing market is experiencing a slowdown, but the situation is not as dire as the 2008 Global Financial Crisis. While challenges remain, there are also positive signs in terms of employment and the continued presence of first home buyers in the market.
Consents for new dwelling consents down four months in a row
While the number of consents for new dwellings in January was 2% lower than the same month last year, builders will still be busy for some time still thanks to previously approved projects, ongoing works, and the extensive cyclone rebuild and repair activity that is expected to extend for several months. This pipeline of work is highly likely to keep builders and contractors on their toes, so while the residential sector is in slowdown it seems unlikely to collapse in the same way it did after the GFC.
February shows a sharp downturn in prices after a fairly flat summer
With the latest, CoreLogic House Price Index up date came a 1% drop in average property values in February, with Auckland, Wellington, and Dunedin experiencing the most significant declines. However, Tauranga, Hamilton, and Christchurch showed some resilience to the downward trend - with Christchurch even showing a slight increase in its averages.
Experts predict that the market will face challenges over the next three to six months across the board and particularly severely when it comes to high mortgage rates – but says there is some hope that things will be looking up in the latter part of 2023. The Reserve Bank projection that higher unemployment is largely due to the influx of new folks into the labour force who are finding it more difficult to find work as opposed to massive job cuts.
On the other hand, more jobs are looking filled
In more positive news, the rate of filled jobs rose by 0.8% in January, which could help households cope with the continued increases in their mortgage payments as they transition from lower fixed rates to the current higher levels. This number may be statistically complex, however, as the sharp rise follows an unexpected 0.5% drop in December which may indicate that neither December or January’s number may be as extreme as they first seem. However, businesses and consumers remain pessimistic, with ANZ's measure of business sentiment still at a low level, despite a slight increase in February. The consumer confidence measure also showed a similar trend.
First home buyers still making noise in a relatively quiet market
Despite the overall quieter market – with the number of purchases across all buyer groups having fallen - first home buyers are still holding a strong presence and accounting for around 25% of the activity in the housing market. It can be safely assumed that low deposit finance is forming a key support for this group. On the other hand, mortgaged multiple property owners such as property portfolio investors have been staying quiet and considering low rental yields, the requirement for 40% deposits, and the removal of interest deductibility this probably isn’t all that surprising.
While it’s plain to see that the New Zealand housing market is experiencing a slowdown, experts don't expect a collapse on the level of the 2008 Global Financial Crisis – and although these trends are unlikely to change in February, it looks like neither should we.