House prices continue to fall; mortgaged owners set for interest hit

Photo: ODT files
Photo: ODT files
House prices continue to trend down as the cost of ownership escalates in line with rising interest rates.

CoreLogic's House Price Index (HPI), which is a national measure of housing prices, fell another 0.8 percent in May over April, with a quarterly fall of 0.9 percent.

CoreLogic head of research Nick Goodall said it was the biggest three-month drop since the end of 2010, when the market was still recovering from the 2008 global financial crisis (GFC).

"For the main centres, the persistent declines in both Wellington and Dunedin housing values have seen the annual growth rate plummet to single figures, while Hamilton is hanging on to double-digit growth at 10 percent," Goodall said.

"For Wellington, this has been a dramatic reduction from the heights of 36.1 percent growth in the year to October 2021."

He said Christchurch was the only main centre experiencing real growth.

Outside the main cities, a few areas were showing sporadic growth, including Gisborne and Queenstown.

Opportunistic cashed-up or equity-rich buyers were still active in those markets, but the outlook was less bright for mortgaged homeowners.

The rising interest costs were expected to hit nearly half of mortgaged homeowners: 48 percent of mortgages would need to be refinanced over the year ending in March.

"The published forecast for the OCR (official cash rate) now has a peak of 4 percent in the middle of 2023, so little more than a year away," Goodall said.

"Only three months ago the forecast peak rate was 3.5 percent at the end of 2023."

He said the rapid rise in interest costs could leave some homeowners refinancing above the serviceability rate they were tested at.

The CoreLogic Quarterly HPI forecast the largest quarterly fall occurring in the third quarter of the year, with a drop of 2.7 percent.

But further falls were forecast to take the annual rate of change down 8.1 percent by the end of 2022, with a forecast fall of 11.8 percent by the end of March 2023.

"If this scenario were to play out, it would 'only' take nationwide values back to the same level as at the middle of 2021, limiting the number of recent entrants who could be exposed and in negative equity," Goodall said, adding it would likely take some time for prices to recover.

"Through the last major downturn (Oct 2007-Mar 2009) values fell 9.9 percent, but it did take a total of five years for values to recover back to the previous peak, so expectations of a return to an upward trajectory should be tempered."

He said the downturn would likely hit the pocket of real estate agents.

"Not only will agents be budgeting for less income, there's also a broad range of industries and professions intertwined with the real estate industry and the transactions within," Goodall said.

"For example, registered valuers will likely see reduced work, fewer transactions will hit the banks' bottom lines as new lending activity reduces, moving companies may have less big moves to do, insurance companies could see fewer new enquiries and even telecommunications and utility companies could see less demand with fewer new households being created.

"The impact of reduced real estate transactions (let alone reduced values) on the broader economy should not be underestimated, and many businesses should consider budget scenarios with up to a 20 percent reduction on activity compared to 2021."

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