The grass isn’t any greener here

New Zealand’s house prices are falling, and interest rates are rising, but other countries are facing similar housing woes, writes Miriam Bell.

Falling house prices and sharply rising mortgage rates are squeezing household finances and putting pressure on the economy.

An unprecedented market boom over 2020 and 2021 led to frenzied activity and skyrocketing prices, meaning affordability was stretched. Many would-be buyers were locked out and struggling with higher rents.

New Zealand’s market rose particularly sharply. Prices climbed by an estimated 42% and hit a record national median price of $925,000 in November 2021. At one point, it had the second-fastest rate of price growth in the world.

But this was a global story, and few countries were unaffected.

International property consultancy Knight Frank said prices in 48% of markets rose by more than 10% annually in 2021, up from 13% pre-pandemic.

It was unsustainable, and when the global market started to turn last year, New Zealand, again, led the way.

The Reserve Bank started raising the official cash rate earlier than other central banks, and the resulting jump in interest rates, plus new lending rules and investor tax policies, triggered a downturn.

Prices nationwide have now fallen 15% from their November 2021 peak, the Real Estate Institute’s latest figures show. Sales are at levels as low as that in the global financial crisis (GFC).

Further price falls are expected. Forecasts for the peak-to-trough decline range from 20% to 25% but this would still leave prices at a level higher than pre-Covid.

New Zealand may have been the first to feel it, but even European countries with markets traditionally considered more stable, such as Germany and Sweden, are now dealing with the hangover from their booms.

Here’s how the downturn is playing out in some countries with comparable markets.

Australia

Across the ditch, Australia’s market is attracting coverage similar to New Zealand’s and headlines focus on its plummeting prices.

CoreLogic’s latest home value index showed prices fell by 5.3% over the year to the end of December. That left the national median value at A$708,613 (NZ$769,935).

It represents the first time national prices have fallen over the calendar year since 2018, and it is the largest calendar year decline since 2008, when values were down 6.4% in the GFC.

The price falls were the most significant in Sydney and Melbourne, down 12.1% and 8.1% to medians of A$1 million and A$752,777 respectively.

CoreLogic Asia-Pacific head of research Tim Lawless says prices have fallen sharply after the Reserve Bank of Australia started the fastest ratetightening cycle on record in May last year.

Since then, CoreLogic’s national index has fallen 8.2%, following a 28.9% rise in values through the upswing. But despite the downturn, prices generally remain well above pre-Covid levels, he says.

‘‘Melbourne is the only [state] capital city where the current downwards trend is getting close to wiping out the entirety of Covid gains, with prices only 1.5% above March 2020 levels.’’

Lawless expects further price falls through the early months of this year, followed by a stabilisation in prices after interest rates – which will be one of the main factors influencing market outcomes – find a peak.

Knight Frank Australia head of research Michelle Ciesielski says prices are likely to decline by a further 7% by the end of this year, but smaller cities, such as Adelaide and Hobart, will be less impacted.

‘‘By the end of 2024 capital growth is expected to build positive momentum and trend up by 5% across Australia. The underlying factors driving this demand will continue to come from migration and the ongoing chronic undersupply of rental homes.’’

United Kingdom

In the UK, prices did not soar to the extent they did in some other markets, but the country did experience a boom over the Covid years.

Knight Frank head of UK residential research Tom Bill says that prices grew by about 23% after the onset of Covid, largely due to an imbalance between low supply and high demand.

In the consultancy’s most recent index, the UK had annual growth of 10% over the year to September, but Bill says that after the disastrous mini-budget announcement in September, house prices were sent tumbling.

‘‘With continued rising inflation, rates were hiked and subsequently the cost of borrowing increased, putting more pressure on households and squeezing mortgage affordability.’’

While markets have now settled, the future of the housing market will be impacted as a result, he says.

‘‘Mortgage rates are playing catch up and only declining slowly, and it has created a disorderly picture for the market at the end of 2022, with a wide range of motivations prevalent among buyers and sellers.’’

Knight Frank research indicates there will be a decline in prices of 10% over the next two years, with a 5% fall this year, Bill says.

The latest Halifax house price index also shows the market has turned. Prices fell 1.5% in December, and annual growth dropped to 2% at years’ end. This left the cost of the average UK home at £281,272 (NZ$536,825).

Halifax Mortgages director Kim Kinnaird says uncertainties about the impact of cost of living increases, alongside rising interest rates, is leading to an overall slowing of the market.

‘‘It will continue to be impacted by the wider economic environment and, as buyers and sellers remain cautious, we expect a reduction in supply and demand overall. Prices are forecast to fall around 8% over the year.’’

But it is important to recognise that a drop of 8% would mean the cost of the average property returning to April 2021 prices, which still remains significantly above prepandemic levels, he says.

Canada

Similar to New Zealand, Canada’s market had been running hot for some time pre-Covid, and pandemic-prompted low borrowing costs resulted in a steep upward price trajectory.

Prices were up 31.6% annually by March 2021, Canadian Real Estate Association (CREA) figures show, and, all up, they rose by about 50% over the years 2020 to 2022, according to Reuters.

The Bank of Canada started raising its benchmark rate early last year, and it has moved from 0.25% to 4.25% taking mortgage rates rapidly up with it. Prices peaked in February, and have been falling since.

New figures from the association show the country’s benchmark home price fell 1.6% in December, and 7.5% annually, to C$730,600 (NZ$846,565). This represents a 13.2% fall from the market peak.

The peak-to-trough fall is the biggest since the association started compiling the data in 2005, while the 7.5% annual drop is the biggest for a calendar year.

The association’s senior economist, Shaun Cathcart, says the housing market story of last year was about high inflation and rising interest rates.

‘‘The 2023 market will depend on the timing and extent those factors move back in the other direction, but demand for housing continues to grow and supply remains the biggest issue across the entire spectrum.’’

But Phil Soper, chief executive of Canadian real estate agency Royal LePage, says while the volume of homes trading has dropped steeply, prices have held on, with relatively modest declines.

This will be a continuing trend as low unemployment means few families are likely to need to sell their homes for financial reasons, and Canada continues to have an acute shortage of homes, he says.

‘‘The first quarters of 2023 should show the deepest price decline, but year-over-year comparisons will show progressively less decline, with small improvements in the third and fourth quarters, allowing prices to end the year essentially flat to where we are today.’’