ASB predicts house prices to drop in late 2022

A major New Zealand bank is predicting house prices will fall in the second half of 2022 as supply meets demand, interest rates increase and credit conditions tighten. 

In a report on Wednesday ASB said it's forecasting house prices will experience a cumulative fall of four percent next year. 

"We now expect small falls in house prices over the second half of 2022. Given the perils of house price forecasting, the cumulative forecast fall, of around four percent should be interpreted more as a hat-tip to the risk profile than a precise point forecast," the report reads. 

"It’s also tiny in the grand scheme of the 35-40 percent surge in house prices since March 2020."

The report also noted homeowners are already preparing for higher interest rates after the Reserve Bank increased the official cash rate by 25 basis points to 0.75 percent last week.

It followed another 25 basis point increase in October. Banks quickly moved to increase interest rates as a result which will begin impacting borrowers over the coming months and could see house prices fall. 

"The sharp adjustment we’ve seen in mortgage rates looks set to be a significant drag on house prices next year. This is the driving force behind our lower 2022 house price forecasts," ASB said. 

Tighter credit conditions are also likely to impact house prices, the report warned.

"Housing credit conditions are tightening. Keen to clamp down on “risky” lending, the Reserve Bank of New Zealand has reduced the speed limit on high LVR owner-occupier lending to 10 percent of new lending, from 20 percent. 

"The new 10 percent limit applies from November, and banks in the past have opted to maintain a buffer a few percentage points below the limit. Some banks are also moving to impose debt-to-income limits ahead of any formal RBNZ moves to do so. This self-imposed credit rationing makes sense to the extent house price affordability metrics are highly stretched and a modest correction next year can’t be ruled out," the report said. 

The report said efforts to meet the housing shortage appear to be working and supply is expected to meet demand in the coming years. 

"We reckon NZ’s housing shortage has been reduced by around a third over the past year. And, if recent trends continue, we could see the market back in a rough state of balance late next year. This gradual abatement of market tightness will help reduce the upward pressure on house prices over coming months."

House prices are still booming with though. November data shows the national average asking price for properties has reached $969,604, a 14-year high, up from $933,135 in October.

But the data also showed a jump in new listings, in what could be the first sign the property market is starting to turn in favour of buyers.