ASB expects house prices to fall 40% when adjusted for inflation

PHOTO: ASB

According to STUFF ASB says it expects house prices to fall by 25% – a drop that when adjusted for inflation would be nearer 40%.

It is an even bigger forecast drop than that predicted by ANZ, which said prices would drop 32% in real terms.

ASB’s economists said, based on Real Estate Institute (REINZ) data released on Tuesday morning, that the market looked to still be decelerating.

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“The REINZ house price indices have eased for a 12th consecutive month on the trot as of November. What’s more, last month’s 1.9% month-on-month fall was the largest monthly fall in house prices since December 2000.

“Rather than getting closer to a floor, the present housing market downturn may be increasing in pace, though we should be careful about extrapolating from monthly swing.”

They noted that house prices were now 14% below their November 2021 peak.

About half of the capital gains recorded since March 2020 had been eroded.

“In terms of the regional split, monthly price declines in many parts of regional New Zealand are now matching those seen in Auckland and Wellington,” they said.

“Northland, Gisborne, Hawke’s Bay and Taranaki all saw monthly falls of 2% to 4% in November – all above or in line with the 1.5% and 2.2% dips seen in Wellington and Auckland respectively (again, all numbers seasonally adjusted).

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“Of course, given the downturn started earlier and has previously proceeded more sharply in Auckland and Wellington, the cumulative fall in prices in the main centres is still much larger than in the regions: 19% to 20% versus a figure in the single digits for most of the rest of the country.

“Still, it’s a sign that many of the factors putting the market under pressure are now national in scope – higher mortgage rates being the obvious one – and some of the regions that have escaped the brunt of the downturn thus far are feeling the pinch.”

They said sales activity was down 12% month on month when seasonally adjusted and had hit levels not seen since the global financial crisis, if the 2020 lockdown was excluded.

“This is not a market on a brink of a comeback.

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“Broader economic dynamics suggest we are in for a prolonged period where the housing market is relatively soft.”

They said strong levels of construction in the past two years meant the housing shortage had dissipated, and population growth was likely to be soft over the immediate future.

The official cash rate might not start to ease until mid-2024.

“Our outlook sees prices erase a chunk – but not all – of their post-Covid gains.

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“Again, given the high levels of inflation we’ve experienced over the last 12 months (and the likelihood inflation remains somewhat elevated in the near term), that number is likely to remain considerably larger in real terms. The inflation-adjusted decline in house prices is likely to be nearer 40%.”