New Zealand Real Estate Falls, “Outlook Remains Pessimistic”: CoreLogic

Higher mortgage financing costs are derailing New Zealand’s hot real estate market. The CoreLogic New Zealand House Price Index shows home prices fell in April. It was the first decline for home prices at the national level since 2020. The firm notes two major markets even saw the biggest drop since the Global Financial Crisis (GFC). 

New Zealand Real Estate Prices Fell For The First Time Since 2020

New Zealand home prices are falling, shows CoreLogic home price data. National home prices slipped 0.8% lower in April, making the first monthly drop since August 2020. Both Auckland (-1.6%) and Wellington (-1.5%) led the way lower, falling almost double the national rate.

Wellington & Dunedin Real Estate Saw The Biggest Drop Since The GFC

CoreLogic specifically called out the weakness in the 3-month trend for two regions. Dunedin (-2.9%) and Wellington (-2.0%) showed the largest 3-month drop since the Global Financial Crisis (GFC). These are all large declines but they’ve barely made a dent after an extended (and bubbly) run.

Home Prices Are Still Elevated Across New Zealand

If you missed the recent price drops, don’t worry — they’re microscopic compared to the gains. Annual growth at the national level (+18.8%) was still some of the highest in the world. Large markets like Auckland (+19.8%) and Wellington (+14.4%) are also much more expensive than last year. These markets are just off record highs and have made very steep climbs since 2020.

CoreLogic NZ House Price Index

Source: CoreLogic NZ. 

Rising Mortgage Rates Have Led To A “Pessimistic” Outlook

Falling demand is attributed to higher borrowing costs driven by inflation. The official cash rate (OCR), a key interest rate, reached 1.5% after a “super hike” in April. Inflation in the country reached a 32-year high and the central bank is trying to cool it. Rising rates cool inflation but also tend to drive the cost of borrowing higher.

Take ANZ, the country’s largest mortgage lender, for example. They responded to aggressive rate hikes by raising the servicing sensitivity rate (SSR). The SSR is now 7.15%, meaning mortgage borrowers have to qualify at the higher rate, despite paying a much lower one.

It’s conceptually similar to Canada’s B-20 Guidelines’ mortgage stress test. Essentially they’re making sure households can pay rising interest rates if they rise. This means making sure they don’t borrow the absolute maximum they can afford.

CoreLogic warns the outlook “remains pessimistic,” with higher financing costs on the way. New Zealand has even put several home price cooling measures on hold fearing too much, too fast. Even with recent price declines, homes are still far out of reach for the average buyer though. If only they were as worried about how fast prices increased as they are about how fast they’re falling.