Property price growth likely to fall to single digits in 2022, possibly 'close to zero' - property economist

CoreLogic and Infometrics are forecasting annual property price growth to drop down to the single digits this year.
CoreLogic and Infometrics are forecasting annual property price growth to drop down to the single digits this year. Photo credit: Getty Images.

Following an almost 30 percent jump in national average property values over 2021, property price growth is likely to reduce to single digits this year - and could drop close to zero, a property economist says.

It follows bank forecasts of property price falls, ASB forecasting in December "small falls in house prices over the second half of 2022".  In November, a BNZ Markets Outlook commented on a "stalling in house price appreciation", more probably, a "modest correction in prices".

Releasing its Property Market & Economic Update on Wednesday, Property analyst company CoreLogic said national property values rose 5.9 percent from September to December 2021.  December saw the average property value top $1 million for the first time, representing a "staggering" increase of almost $218,000 from the end of 2020.

But property prices are likely to have peaked, CoreLogic says. In December, sales volumes, (the number of properties sold) were around 28 percent below December 2020, an indicator that price growth will also slow.

Rising interest rates are contributing to affordability pressures. Credit supply is tighter, as lenders place greater scrutiny on affordability to meet Credit Contracts and Consumer Finance Act (CCCFA) requirements.

Changes to loan-to-value ratio restrictions from November reduce lending to  owner occupiers with small deposits. Some banks were also applying caps on debt-to-income ratios.

"Overall, it's going to be another fascinating year and we suspect the balance of power could tip towards buyers from June/July onwards," CoreLogic said in the report.

"And it wouldn't be a surprise to see average value growth slow from 30 percent in 2021 to single digits in 2022, possibly close to zero."

Talking to Newshub about price growth forecasts for the year ahead, CoreLogic chief property economist Kelvin Davidson said he expects national property values to grow up to 5 percent.

"Nationally, we could get down to 5 percent or less," he said.  

Prices in the regions may differ - some could be above, or possibly fall, he said. In certain regions such as Canterbury, better affordability meant markets had outperformed the average. 

In smaller provincial towns (e.g. those in the central and lower North Island which had seen high price gains), there could be a slight price correction. Examples are if lower affordability causes investors to sell.

"[We anticipate] a slowing national average and within that, we're likely to see some rises, and some falls within other places," Davidson added.

Although property supply is still tight, recent new listings and slowing sales volumes have caused available stock to rise, bringing more choice for property buyers.  

But those waiting for widespread house price falls are likely to be in for a long wait.

"There's no forced sellers out there… if it takes a bit longer, they might choose to pull the listing altogether if they're not getting the price they want,'' Davidson said.

A switch from a "sellers market" to more of a "buyer's market" is difficult to define. Towards the middle of the year, there should be a sense of where the market is at.  

In some cases, opportunities may arise to put in a sneaky offer and have it accepted.

"Buyers are likely to have a bit more choice…by the end of the year, that sense of desperation won't be there, which takes the pressure off prices," Davidson added.

Omicron is unlikely to have a significant impact, but rising unemployment, currently a record-low 3.4 percent, could have a negative impact on property prices.

"Historically, when New Zealand house prices have fallen, it was during periods of high unemployment - if unemployment stays low and mortgage rates rise, people will adjust.

"It's when jobs start being lost that issues start to arise."

The total value of residential real estate reached $1.72 trillion in the three months to December, 2021, up from $1.35 trillion at the end of 2020, CoreLogic's report shows.

Mortgages are secured against 19 percent of that value, and the other 81 percent is household equity.  While household equity is high across-the-board, for those who have mortgages, debt is high relative to income, making these households more sensitive to interest rate rises.

Infometrics chief forecaster Gareth Kiernan anticipates house prices will grow by 4.5 percent by the end of this year.

Expectations of slowing price growth are based on a mix of factors such as rising interest rates and loan-to-value ratio changes, a big one being changes to CCCFA rules. If changes are made following a review, they're likely to take time to trickle through to the market.

"They're all going to add up to keep the market softer," Kiernan said.

Omicron isn't considered a big risk to house prices.  Record-low unemployment means people have job and income security to service their mortgage. Newer borrowers have been tested on their ability to service their mortgage at higher interest rates. 

"As long as they stay in work, people should be able to meet their obligations," Kiernan added.