New Zealand’s property market has been a source of
major uncertainty in the recent past, with housing activity
showing rapid changes. After thriving for close to two years
during the pandemic, the property market is now experiencing
a slowdown. Buyers have been exiting the market as high
prices and rising interest rates bring fresh affordability
concerns.

Fear of missing out (FOMO), which had once
dominated homebuyers’ minds, has now been replaced with
the fear of overpaying (FOOP). Both these factors have been
integral in shaping the housing market dynamics in New
Zealand. The current climate has instilled a feeling of
excessive payment in buyers trying to cope with a highly
volatile market. Sellers are also bringing fewer properties
into the market as global headwinds create
ambiguity.

Increasing interest rates, fears of a
recession kicking in, geopolitical tensions and supply-chain
disruptions are some factors that are driving uncertainty in
the property market. Meanwhile, resourcing issues in
construction and widespread reporting of house price falls
seem to be waning buyers’ interest in the housing
market.

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Property prices going
south

The declining property prices could be blamed
for dwindling buyers’ interest in the housing market.
Demand for housing has dropped quickly, especially after
interest rate hikes gained momentum. Meanwhile, lesser
demand for housing has spurred a downward trend in housing
prices over recent months.

The recent data from
CoreLogic suggests that national property prices have fallen
by 0.8% in May after declining by the same magnitude in
April. Experts believe that persistent declines in
Wellington and Dunedin fuelled the national drop in housing
prices as their annual growth rate has plummeted to a single
digit. However, Hamilton’s annual price growth hangs on a
double-digit growth rate of 10%. Meanwhile, Christchurch and
Auckland observed a sharp annual change in house price
growth in May.

Speculations are rife that the slowdown
in the housing market could persist until the middle of next
year, when the bulk of the property price decline will be
over. Beyond that, prices are more likely to remain
steady.

Slower sales leading the price
decline

A sharp decline in home sales across the
country also reflects buyers’ reducing participation in
the property market. According to the Real Estate Institute
of New Zealand (REINZ), residential property sales dropped
by 35.2% annually in April 2022.

April sales figures
further suggest that properties have stayed on the market
for a long. Within April itself, residential property sales
declined by 29.3%. Among regions, Marlborough recorded the
highest drop in sales of 53.6%, while sales in Auckland
dropped by 41.3% annually.

Moreover, sellers have
become reluctant to put their property on the market with
decreasing prices. Concerns loom that the decline in
property sales could become more pronounced following
additional interest rate hikes by the central
bank.

What to expect from property prices?

Big
banks have predicted double-digit falls in property prices
in the next year, pointing to the biggest drop in over 40
years. As buyers find it difficult to manage living
expenses, taking out a mortgage in the current rising
interest rate environment could become an additional
burden.

Thus, many buyers are opting out of the
property market while choosing alternatives like staying on
rent. Besides, second or third-time property buyers are
delaying large purchases to avoid falling into a hefty debt.
This has inadvertently prompted a decline in the prices of
property bought at painfully high prices
earlier.

Consequently, many first-time buyers are
locked in a market where properties are swiftly losing their
value, and monthly mortgage repayments are also rising. Most
of these buyers have financed their dream homes during the
near-zero interest rate era and are now unable to fetch
equal value for their property.

A potential drop in
housing prices could cause more turmoil for homebuyers, with
mortgage rates being reset over the coming months.
Additionally, an increased supply of new housing could
further push down the value of existing homes. Thus, buyers
still largely excluded from the market might see some relief
from future price drops.

Additionally, increasing
incomes and accumulating household savings could provide
some respite to the economy from property market woes.
However, the slowdown in housing prices is likely to be most
impactful on those already paying off mortgages. Overall, a
mix of these polarising factors could result in a soft
landing for the market.

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