Several economists and market analysts were skeptical of ANZ’s early-year prediction that home prices may decline by seven percent (or more) throughout the year.
With inflation taken into account, the 10% price decline forecast by ANZ in March climbed to 12% in April, 15% in June, and 18% by late October.
Eventually, even the most optimistic analysts and banks admitted the decline would be big, and they revised their estimates accordingly.
The investment banking company Jarden predicts that national home values will continue falling at an increasing rate through March.
How much prices will fall and how much the typical house will cost when the market bottoms out are difficult to foresee.
Nick Goodall, head of research at CoreLogic, proposed looking at what would have occurred in a “normal market,” one that wasn’t boosted by the low-interest rates and looser lending standards that Covid caused in 2020 and 2021, or the “FOMO” (fear of missing out) that gripped investors at the time.
The Reserve Bank projected a sustained modest increase in prices, with the median price reaching slightly more than $745,000 by the end of 2021, in its Monetary Policy Statement published in November 2019.
According to CoreLogic, the average home price in the United States increased to just over $1 million at the end of December, almost $250,000 more than anticipated.
In March, the median price reached $1.04 million, having risen steadily since January.
For homeowners and investors, the good times stopped there, and the slump seems to be gaining momentum, with CoreLogic reporting a 4.5% decline in prices from the beginning of August to the end of October. It is a bigger drop than was recorded even during the global financial crisis.
But considering where we started, the median home price of $964,202 is still over the RB projection.
CoreLogic recently reported that all gains from the previous year had been erased throughout the country, and it increased its projection of how far prices would fall to 18%, in line with ANZ’s forecast.
Midway through 2023, according to Goodall’s projections, the median price should drop to $855,000.
That’s $250,000 more than the average price in March 2021 but $75,000 more than it was during the height of the epidemic.
Despite being $250,000 less than the median price in March 2020, before the price spikes caused by Covid-19 monetary policy, it is still around $127,000 greater than the mean price at the market top during the pandemic.
When the epidemic finally reached our shores in early 2021, the average value was $723,000. A 31% drop is needed to reach that level again. Goodall emphasized that this was not something that anybody was predicting.
Goodall was keeping a watch on potential price-depressing variables, the most important of which was inflation.
Many were taken aback by the mid-October inflation numbers, which showed prices had risen 7.2% over the previous year.
“If it proves even more tenacious than it has shown so far, we are likely to see more rises to the official cash rate, which might cause more suffering in the market, a long downturn, and a deeper trough than would otherwise be expected.”
It may ripple impact on GDP and employment rates, leading to further declines.
According to ANZ senior economist Miles Workman, the bank’s current outlook harms affordability, fully unwinding due to increased earnings and declining prices.
But, he reminded us, “as you remember, there were already requests for the Government to do more,” since home affordability in New Zealand was awful even before the epidemic.
“What I’m doing here is discounting the post-pandemic peak because that was just a crazy time in the market with too much stimulus and too much fear of missing out money flowing into the market, but from a long-run trend perspective I think there is potentially just a bit more house price unwinding to come.”
According to Workman, home values will continue to fall if inflation and the labor market both stay tight, forcing the Reserve Bank to raise interest rates by more than 5%.
