House prices could be expected to continue to decline at least in the first half of 2023, an Infometrics economist said. Photo: RNZ / Nate McKinnon
House prices are expected to fall further as the new year unravels.
Prices fell significantly in 2022, but remain well above pre-pandemic levels.
Infometrics principal economist Brad Olsen said all signs suggest that the current decline will persist well into 2023.
"We're expecting that house prices in New Zealand will continue to decline throughout at least the first half of '23, as we see those higher interest rates continue to be ratcheted even higher by the Reserve Bank," he said.
In the second half of the year, the question of how the housing market might evolve would begin to emerge, he said.
"We've seen that population growth remains at near record lows, but more recently, net migration has strengthened from quite a considerable outflow to a smaller outflow," he said.
There would also be questions around the level of building across the the country, as the impact of interest rates started to hit, he said.
An International Monetary Fund report on housing market stability and affordability in Asia-Pacific, has found that house prices have become significantly misaligned.
New Zealand had the highest increase in house prices, going up by nearly 35 percent between 2020 and 2021.
Since September 2021, the Reserve Bank has raised the policy rate by 400 basis points, the report said.
While house prices had now declined for two consecutive quarters.
Combined with the expected rise in interest rates as central banks normalize monetary policy, the report suggested the housing market could be at risk of a price correction.
The country had experienced a "mighty" spike in house prices in the last few years, Olsen said.
"New Zealand's house price gains have been some of the largest in any developed country throughout the Covid-19 pandemic, stimulated by the huge amount of support and money that's been poured into the economy by the Reserve Bank and by the government to prop up the economy during a time of crisis."
Coming out of that, Olsen said, New Zealand effectively had further to fall.
However he said that drop had to be kept in perspective of just how much prices had increased.
House prices were still not back to pre-pandemic levels but were coming back to a likely more "sustainable" level, he said.
A "controlled decline in the housing market" was likely to continue into 2023, Olsen said.
Price declines in 2022 had happened in an "orderly fashion" and so far there were no signs of the market moving at a greater pace and starting to snowball into a much bigger correction, he said.
But one thing to watch out for in the new year was the level of mortgagee sales, Olsen said. Although he did not expect many New Zealanders would be in the predicament of having to sell their home.