House values continued to fall last month and there are signs that refreshed official cash rate (OCR) forecasts are likely to prolong the downtown, new data shows.
The latest CoreLogic House Price Index shows while the housing market downtown in New Zealand eased in October, values still fell by -1.3 percent over the month after tracking down -1.5 percent in September.
But there are warnings that any shoots of optimism are likely to be cut short by future increases to the OCR, starting with the next Monetary Policy Statement from the RBNZ on 23 November.
CoreLogic NZ head of research Nick Goodall said the biggest constraint on the housing market right now is affordability, with potential buyers stretched by both increasing mortgage interest rates and the more stringent serviceability test rates.
"The latest CPI inflation figures for Q3, which shocked all predictions coming in at 7.2 percent annual growth, led to an across-the-board upward adjustment of OCR forecasts. Assuming the RBNZ follow suit on 23 November the OCR will move to 4.25 percent, which could see the floating rate approach 8 percent and the one-year fixed rate top 6 percent," Goodall said.
"This will likely lead to a lot of belt-tightening by mortgage holders - the exact desired effect the RBNZ wants."
The average floating rate at the end of October was roughly 7.1 percent and the average one-year rate was 5.6 percent, although Goodall said some individual banks have already pushed it to 5.99 percent.
Meanwhile, he added the serviceability test rate was already above 8 percent for at least one main bank and with multiple increases to the OCR forecasted, this test rate could lift to as high as 8.5 percent.
"Furthermore, this market downturn continues to compare unfavourably to the last major downturn, following the global financial crisis in 2008. The national quarterly rate of fall at the end of October of -4.5 percent now exceeds the worst quarter from that period, which was -4.4 percent at the end of August 2008," Goodall said.
"The annual rate of change has now fallen into the negatives (-0.6 percent), only a year after experiencing the strongest rate of growth on record (28.8 percent in the year to the end of October 2021)."
Stretched affordability is constraining the ability and willingness of all buyers to get or extend a mortgage, he said, while property investors looking to grow their portfolio are also faced with tighter tenancy regulations alongside increasing costs and reducing rental growth.
CoreLogic said this all leads to reduced demand and contributes to falling house prices.
Property values continued to fall across Auckland, Hamilton, Tauranga, and Wellington, with the capital city continuing to have the weakest performance.
Values in the Hutt and Porirua fell a further -2.6 percent over the month, although the quarterly fall of -7.5 percent was a slight improvement on the three months to the end of September (-8.5 percent).
The annual fall has grown to -13.1 percent, extending the record for the region that was first broken last month.
Down in the South Island, both Christchurch and Dunedin had reductions in the amount their house values fell last month. In Dunedin's case, it fell to a 0 percent change in values, down from -1.7 percent in September.
But CoreLogic said it's too early to call the endgame for the southern city since it has seen persistent monthly falls below -0.5 percent since February 2022 and a quarterly drop of -4.2 percent, showing a more relevant trend of a market in retreat.
For other main centres in the North Island, values are now lower than they were a year ago for the first time since this downturn began.
In Auckland, after a minor improvement in the quarterly rate of fall in September (to -4.0 percent), the rate deteriorated again in October (-4.8 percent), which CoreLogic said showed continued uncertainty and weakness in New Zealand's largest city.
In the Auckland suburbs, values fell across the board, from -1.3 percent in both the North Shore (average value $1.52 million) and Franklin ($980,000), to -2.2 percent in Papakura ($1 million).
CoreLogic added that on the longer-term annual measure, the smaller outer areas of Rodney, Papakura, and Franklin have held up better, with average values in these areas remaining above the same time last year.
The monthly results in other urban areas were mixed, with mini-bounces in value occurring in both Nelson and Gisborne after prior monthly falls. Values remain down on the quarterly measure everywhere except Queenstown and New Plymouth has shown similar resistance, with values still 10 percent above the same time last year.
Meanwhile, Nelson (-1.6 percent) and Whanganui (-1.3 percent) have joined Napier (-9.1 percent), Palmerston North (-7.8 percent), and Hastings (-4.8 percent) as the main urban areas where the average property value is now below the same time last year.
Outlook for NZ housing values
On October 5 the Reserve Bank considered a 75 basis point OCR lift and CoreLogic said it will almost certainly not only consider it this month but likely settle for it, especially following the recent inflation figure and assuming another strong labour market result on Wednesday.
"Perhaps of most interest when the Monetary Policy Committee next meet, and publish their OCR decision on November 23, will be their forward guidance. Not only for the OCR, but also for GDP, the unemployment rate and house prices too," Goodall said.
"All banks have revised their house price forecasts down in the wake of the latest data and if we assume an -18 percent fall from peak-to-trough, that would take the average price to $855,000, still a lot higher than March 2020.
"The average value prior to the pandemic hitting our shores in February 2020 was $723,000. To get back to that value would necessitate a -31 percent fall - not something anyone is forecasting, yet."
Goodall added that while the Reserve Bank acknowledged the banks are well capitalised and have shown a willingness to fight hard on rates and cashbacks, the competition has appeared to recede more recently, with some turning an eye to first-home buyers.
He said the latest CoreLogic Buyer Classification data showed this group has managed a bit better than other buyer groups in the tightened environment, with 24 percent of sales going to them in September - their highest proportion since March 2022.
