The New Zealand property market faced a significant downturn in 2022, with property values and sales volumes dropping more than anticipated. A recent property market report highlighted that last year was truly a buyer’s market, with various factors shifting power away from sellers.
Factors Behind the Market Decline
Several factors contributed to the slowdown in the housing market, including tighter lending restrictions, higher mortgage rates, and an increase in available listings. These changes made it harder for buyers to secure loans, reducing overall demand and leading to lower property prices.
Experts had predicted a market downturn, but the depth of the decline exceeded expectations. Sales activity was notably weak, as many potential buyers took their time to make purchasing decisions, while sellers also held off on listing their properties, thanks to low unemployment providing financial stability.
Property Sales and Price Trends
Total property sales for 2022 were estimated at around 67,000—the lowest since 2010 and among the lowest in the past 30 years. Meanwhile, national property values fell by approximately 10% from their peak, with further declines expected in 2023.
To put this in perspective, the financial crisis of 2008 saw a similar peak-to-trough decline of around 10%. However, the impact varied across different regions. Some areas that had previously experienced strong growth saw the biggest drops, while other locations showed more resilience. No region, however, was completely immune to market conditions.
Impact of Rising Mortgage Rates
One of the biggest challenges in 2022 was the sharp increase in mortgage rates. Higher interest rates reduced borrowing capacity for new buyers and increased repayment costs for existing homeowners. Many homeowners who had locked in low fixed rates earlier found themselves facing much higher monthly payments when their fixed terms ended.
Despite these challenges, first-home buyers remained active in the market, making up a larger share of purchases as the year progressed. In contrast, property investors were less active, particularly those relying on mortgages, although cash buyers continued to play a role.
Predictions for 2023
Looking ahead, the property market is expected to remain challenging. The Reserve Bank has forecasted that the economy will enter a recession, inflation will remain high until at least mid-2023, and unemployment is likely to rise. These factors will influence buyer confidence and borrowing capacity.
A key concern is the potential for mortgage rates to rise above 7%, which could put additional pressure on homeowners. However, widespread job losses are not expected, which may help prevent a surge in mortgage defaults and forced sales.
If property values continue to fall as predicted, they may decline by another 10% in 2023, bringing the total drop to around 20% from the peak. Even with this decline, house prices would still be higher than pre-pandemic levels by 15-20%.
Final Thoughts
New Zealand’s property market had a difficult 2022, and the challenges are likely to persist in 2023. With high mortgage rates, cautious buyers, and economic uncertainty, the market remains in a period of adjustment. However, with stable employment and a gradual economic recovery, conditions may improve in the coming years.