NZ Housing Market Struggles: Falling Prices and High Interest Rates Pressure Homeowners

Date Published: 20 June 2024

Key Facts

• Households with mortgages should not expect interest rate cuts for at least six more months.
• Kiwibank survey: nearly one in three respondents cannot cover a $500 unexpected bill without outside help.
• House prices continue to fall, with an average national decrease of 0.2% over three months ending May.
• Auckland saw a 1.4% drop in quarterly house values for the fourth consecutive month.
• 221 suburbs saw price drops of at least 1% in the June quarter.
• Proposed rate hikes: West Coast Regional Council (27%), Hastings District Council (25%), Wellington (17%), Hamilton (16.5%), Auckland (6.8%).
• Over 8500 first homes bought between October 2021 and March 2022 have lost value; over 2000 of these by more than 20%.
• New building cost inflation is stabilizing, with a 1.8% annual rate increase for a standard three-bedroom house.

Article Summary

The New Zealand housing market continues to face downward pressure, with house prices falling across various regions. For at least the next six months, households with mortgages should not expect any relief in terms of interest rate cuts, as high rates and challenging economic conditions persist. A Kiwibank survey highlighted financial struggles among households, with nearly a third unable to cover a $500 unexpected expense without needing to borrow money, sell assets, or use credit cards. The Kiwibank CEO indicated that interest rates might not see significant cuts until the end of 2024 or even into 2025.

House values have experienced a decline, with the latest QV House Price Index indicating a national average drop of 0.2% over three months up until May. Auckland witnessed a notable 1.4% decline in house values for the fourth consecutive month, leading the overall market downturn. Suburban areas have also been impacted significantly, with 221 out of 938 suburbs showing price decreases of at least 1% in the June quarter. The market stagnation has presented buyers with more choices and less urgency, given the subdued nature of the housing market.

New housing data reveals that numerous first-home buyers are experiencing a loss in equity, with properties purchased between October 2021 and March 2022 dropping in value, some by more than 20%. Auckland and Wellington are notably affected, accounting for 42% and 10.8% of these losses, respectively. However, the CoreLogic head of research suggested that this should not pose a significant issue for long-term homeowners unless their circumstances change.

The cost of building new homes is stabilizing, with the QV CostBuilder report indicating an annual rate increase of 1.8% for a standard three-bedroom house. Although this rate is returning to pre-pandemic levels, it remains at the lowest in more than four years. Falling material prices and a cooling housing market have contributed to this trend, although long-term changes in government policies may take time to influence these costs further.

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