New Zealand's housing market is currently undergoing its most significant downturn in modern history. Nominal house prices have fallen by approximately 18% nationally, while real prices, adjusted for inflation, have plummeted around 30%. Auckland and Wellington have experienced even steeper declines, with nominal prices in Auckland down about 20%. This downturn surpasses previous ones, including those after the Global Financial Crisis and the 1987 crash, making it officially the worst on record.
The decline is attributed to several factors, including rising interest rates, election uncertainty, and the prospect of new housing taxes, which have particularly dampened investor demand. The Reserve Bank of New Zealand has increased the Official Cash Rate to 2.5% and is expected to raise it further to a neutral level of around 3%, leading to higher mortgage rates. This has resulted in a pull-back from investors, with their share of new mortgage lending decreasing.
Sales volumes have also declined, with national residential sales in June down 11.0% from May and 2.9% lower year-on-year. Auckland bore the brunt of this slowdown, experiencing a 13.3% drop in sales from the previous month. The national median sale price in June was $770,000, a 1.3% decrease from May. The REINZ House Price Index, a more reliable gauge of underlying values, fell 0.9% from May and was down 0.8% year-on-year.
Despite the current challenges, some analysts, such as Squirrel, foresee a turnaround. They project annual price growth of 4-5% once immigration and job growth rebound, with a recovery potentially starting towards the end of this year. However, ANZ anticipates that house prices will end the year down 2% year-on-year, with only a small increase forecast for 2027. For first-home buyers, the current market presents a "golden opportunity" due to improved affordability, although rising mortgage rates offset some of the gains from softer prices.
Regional variations are significant, with Auckland and Wellington underperforming the national average over the past five years, while much of the South Island has outperformed. Auckland's prices are now reaching the low end of their typical range relative to incomes, suggesting a potential for stabilization. In contrast, Wellington faces continued pressure from public sector downsizing. Home building has also hit a 10-year low in New Zealand, with 37,239 new dwellings consented in the 12 months through March.
