ANZ says house prices about half way through a downward spiral

We are about halfway through the current slump in house prices, according to the latest NZ Property Focus report from ANZ’s economists.

“The housing market continues to shed momentum as the ridiculously high starting point gets a reality check from higher mortgage rates, the turn in buyer sentiment, and continued progress towards eroding the housing deficit,” the report says.

“The 8% fall in house prices to date marks roughly the halfway point in our forecast for a 15% peak-to-trough decline.”

However the report also notes that there are plenty of uncertainties around where the housing market could be headed from here. ANZ is New Zealand’s biggest residential mortgage lender with more than $ 102 billion worth of home loan exposures as of June 30.

“On the downside, inflation may hold up longer than expected, forcing interest rates higher. But if this is accompanied by stronger than expected nominal wage growth, there will be an offset to borrowing capacity,” ANZ says.

“That means the risk in that scenario would be that interest rates may need to go higher to achieve the required housing slowdown, rather rather than greater downside risk to house prices. The risks around net migration feel skewed to the downside presently, a potential negative for housing demand. “

“And hard landing risks for the broader economy remain highly pertinent,” says ANZ.

“Even 8% off their peak, house prices remain highly vulnerable should we see a sharp rise in unemployment,” the report says.

The report notes that ANZ’s economists are still picking the Reserve Bank to make two more 50 basis point hikes to the Official Cash Rate this year, which would take it to 4% in November.

“Barring an unexpected shock, we see more upside risk to the OCR outlook than downside,” it says.

“That leaves wholesale rates vulnerable to adjusting higher, taking mortgage rates with them.”

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