From the buyers’ perspective, 2022 ended on a positive note for the New Zealand real estate market, as housing prices across several regions fell drastically. The transition in housing costs is in tandem with rising inflation, bloated interest rates, and shifting lending rules by NZ financial institutions. These factors have had a cooling effect on the average asking price of the New Zealand real estate market, bolstering economic activity for the first time since the pandemic era, when costs had hit the roof.

The property market in New Zealand had a severe decline last year, and experts predict that it will likely continue to be weak this year. The Real Estate Institute’s house price index indicates that prices peaked in November 2021 and that by the end of 2022, they had decreased 13.7% countrywide from that high. According to the Institute’s most recent statistics, sales activity was subdued in November and was down 36.1% year over year. NZ saw the lowest sales since 2010 as buyer apprehension increased, contributing to slower sale turnaround times. Consequently, there were a number of units on the market.

As such, buyer’s markets have cropped up nationally and in regions such as Hawke’s Bay, Otago, and Taranaki. Buyer’s markets have already been established in Auckland, Waikato, Nelson, and the Bays. Wellington also re-emerged as a buyer’s market in December, continuing its streak from March 2022. Manawat/Whanganui have also joined the market as 2022 closes.

Role of interest rates in shaping the NZ housing market

The typical two-year fixed mortgage rate was 4.73% in December 2021. In November 2022, this will rise to 6.75%. There is less credit accessible to buyers since money is more expensive than it was a year ago. When the Reserve Bank announced in November that the official cash rate (OCR) would increase by a record amount, to 4.25%, along with forecasts for further increases and a recession, it had an immediate effect. Banks have raised their rates; some fixed-term rates are already approaching or exceeding 7%, while floating rates are currently hovering around 8%. This has an impact on how much people can borrow, and as a result, purchasers have stayed away from the market.

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Interest rates could be the biggest driver of buyer demand because, while mortgage rates can rise further, fixed rates are closer to their peaks. Given that just approximately 10% of mortgages are floating and the majority of people have fixed rates, the prediction that floating rates will eventually approach 10% was reckless. As a result of fewer buyers in the market and rising stock levels near the motu, a situation where supply outpaces demand and buyers’ markets develop occurs. It’s not always bad news for sellers when there is a buyers’ market because it gives buyers and sellers more time to negotiate and conduct due diligence. It may not necessarily imply inexpensive prices.

Availability of housing stock in the New Zealand real estate market

All regions saw year-on-year total stock increases during December 2022, and four regions saw stock more than double. Growing by more than 100% was Coromandel (up 175.3%), Nelson and Bays (up 147.2%), Taranaki (up 118.%), and the central North Island (up 110.3 percent). National stock levels were also up by 55.3 percent year-on-year.

Those looking for a property at summer holiday hotspots have more to choose from than they did a year ago. This is especially significant in small regions like the Coromandel. At the end of December 2021, there were just 157 homes for sale in the region. At the end of December 2022, 432 homes were on the market.

Subdued sales mean more housing options

Sales last year suffered from rising mortgage rates, and until they level off, purchasers are likely to stay cautious and sales activity will likely remain low. It’s difficult to imagine sales volumes increasing significantly this year given the weak GDP data and rising mortgage rates. There will probably be between 65,000 and 70,000 repetitions overall. Sales levels are probably going to stay low compared to historical volumes as well as pre-Covid eras.

Although the market may be more difficult for sellers this year, there are chances for buyers who have financing because of reduced prices and more houses for sale. Therefore, for first-time homebuyers who can afford it, this will be a wonderful moment to buy because they won’t have to compete with investors and won’t have to pay a premium for a property.

The election also plays a factor

The “wait and watch” strategy will persist until after the election for many investors, who have been in a holding pattern in the run-up. In addition to looking at modifying some of the other rules Labour has implemented to stifle investor activity, National and ACT have stated that they will restore the ability to deduct interest on rental properties.

In the weeks leading up to Christmas, activity may increase if National wins the election as investors return to the market. In contrast, a Labour victory might imply that the market remains more cautious. But, one can anticipate that the market will remain quiet until the election. Election years are typically slow since individuals are frequently afraid to make real estate choices until they know what the future may hold.

To sum it up

The key worry for many people is how much further prices might decline this year given the already large decline in home values and the growing anxiety over negative equity. He predicts that this year’s price lowering will likely continue, particularly if the economy continues to deteriorate. Instead of generalizing, you should examine specific markets, including suburbs.

The national average price fell by around 10% from its peak last year, according to CoreLogic, and it may drop another 10% this year. The overall decline would then be down to roughly 20% nationwide. For reference, the final peak-to-trough decline in the global financial crisis was 10%. However, it’s vital to keep in mind that even if a 20% decline occurs, prices will still be 15-20% higher than pre-Covid levels.