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The Guardian - AU
The Guardian - AU
World
Eva Corlett in Wellington

New Zealand house prices see fastest drop since GFC, but first homebuyers still shut out of market

The average house price nationally is now more than NZ$1m.
The average house price nationally is now more than NZ$1m. Photograph: Xinhua/REX/Shutterstock

House prices in New Zealand are experiencing the fastest drop in value since the global financial crisis, but many first homebuyers remain locked out of home ownership due to an inflated market, the cost of living crisis and rising interest rates.

New Zealand has been plagued by a runaway housing market for years. Wellington and Auckland are among the least affordable property markets in the world, and homeownership rates have been falling since the early 1990s across all age brackets, but especially for people in their 20s and 30s. The average house price nationally is now more than NZ$1m.

Property analytics company, CoreLogic, released its latest house price index on Tuesday. It shows the current market downturn became further entrenched in July, with national property values falling a further 0.9%, taking the quarterly drop down to 2.5% – the largest since October 2008, when the market was in retreat from the global financial crisis.

Each of the country’s six main cities experienced price falls – but there were some stark falls across the Wellington region.

“Considering the growth rate in Wellington less than a year ago - with 36% - the fact that within less than a year it has dropped into negative territory is pretty remarkable,” Nick Goodall, CoreLogic’s head of research told RNZ

The capital could experience a 25%-28% annual drop, if the current rates stay the course, Goodall said, but at this stage the overall declines do not signal a property crash is imminent.

“The relatively controlled nature of this downturn is unlikely to ring alarm bells for those at the RBNZ [Reserve Bank of New Zealand] especially after such a strong upswing in values prior to the end of 2021.”

With inflation reaching a three decade high of 7.3%, the RBNZ will be prioritising keeping inflation down through increasing the official cash rate, he said.

House values skyrocketed during the first year of the pandemic – median house prices rose 31% in the year to July 2021 – spurred on by government policymaking to deter a market crash.

“[The government] pulled out all the stops and sent signals to homebuyers and sellers that they were not going to allow the property market to collapse,” said Dr Michael Rehm, a senior lecturer in property at the University of Auckland.

“In New Zealand, we love our property … it is often seen as a one-way bet … and with the government backing it up, it was a no-brainer.”

Investors and cashed-up buyers flooded into the market. The government then tried to correct the situation by knee-capping investors and updating responsible lending codes. The country is now starting to see the effects of these policies, Rehm said.

But even with house prices dropping, and forecast to continue dropping, first homebuyers will struggle to get on the ladder.

House prices would need to fall by up to 70% to reach an affordable level that does not overburden households, Rehm said, adding that this is an aspirational figure, rather than a realistic one.

“You can imagine the amount of money that households are dedicating to buying a house, getting the deposit, paying back the mortgage but also having to pay a lot more interest than they should – house prices should never have gotten so crazy-disconnected from incomes.”

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