The REINZ House Price Index fell 1% in December breaking a record 20 consecutive months of house price gains.
The REINZ House Price Index fell 1% in December breaking a record 20 consecutive months of house price gains. Annual house price growth reached 23.3% at the end of 2021 from a recent record high of just over 30% in August. House price growth is forecast to fall fast in 2022.
Sales too dropped in December; no doubt hit by rapidly tightening credit conditions.
While cracks are certainly appearing in the housing market, we don’t see an imminent collapse. More of a period of consolidation. For instance, the labour market continues to demonstrate remarkable resilience in the face of covid. A source of strength for households in 2022 servicing mortgages and paying the rent.
A change in the wind.
The various headwinds weighing on the housing market now look to be finally having a meaningful impact according to the latest REINZ report for December. For the first time in 20 months the REINZ House Price Index (HPI) recorded a fall. The HPI fell 1% across NZ and ended the longest run of monthly gains in the history of the index (see chart below). On an annual basis, house price growth dropped to 23.3%, down from a high of just over 30% as recent as August. Sales activity fell in the final month of 2021 too. Seasonally adjusted, sales were down 6.7% across Aotearoa. And underscoring a cooling market was a rise in the median number of days to sell a house by 2 days to 34.
A soft start to 2022 is also on the cards. Changes to consumer credit legislation (CCCFA) from 1 December is exacerbating the tightening of credit conditions. A mortgage is not just getting more expensive as interest rates rise. A mortgage is now harder to get hold of full stop.
The dynamics of the market have certainly changed in the last few months. The number of new property listings is trending higher. And as the market fails to absorb new listings the total available supply for sale has begun rising off record low levels. Total available listings were near 17,000 in December according to realestate.co.nz, that’s 30% up on a year ago. The market looks to be shifting from a firm sellers’ market to a buyers’ one.
Looking at some of the regional detail, Auckland experienced a significant 2.3% fall in prices in December. The sharp fall followed a post-delta rally in prices as the market responded to the easing of restrictions. Annual house price growth fell in every region across the country. And sales are substantially lower than a year ago in almost all regions except Marlborough.
Our outlook is one of market consolidation.
As we mentioned in our latest outlook note, released last month, we’re forecasting the housing market to consolidate rather than experience a major correction. The period of record low mortgage rates and seemingly unsurmountable housing shortage is over. Now the market faces a combination of rising mortgage rates, tighter lending conditions, and rapidly rising housing supply. From here, we expect to see house price growth falling fast.
We aren’t forecasting a major correction in the market. Looking at the past 30 years, meaningful corrections typically occur when credit conditions tighten rapidly, and we have an unemployment rate rising fast. We certainly have tightening credit conditions and rising mortgage rates. Yet we see the labour market as a source of strength for households, not weakness. The unemployment rate is expected to remain consistent with what would be considered consistent with full employment. With pay packets still coming in, and wage growth rising, mortgage holders can by and large service a mortgage. Renters too can cover essential living costs and ensure landlords meet their mortgage obligations. There remain risks to our view of course, but for now we are reluctant to project sustained house price falls in the near term.
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Jeremy Couchman is a contributor to elocal Magazine.