The bank is predicting prices have further to fall in this cycle as credit conditions remain tight, and confidence is lacking. It is picking a fall of 10-11% in the House Price Index (HPI) by the end of the year.
The quiet market appears to be putting many potential vendors off from listing.
According to realestate.co.nz the number of new property listings are tracking close to the level seen last year when there was a much more active market.
Comments made by those working in the market suggest the gap between the price expectation of vendors and buyers is just too far to bridge at present.
Kiwibank says equally, a strong labour market means there are far fewer forced sales than might be typical in housing market correction of this magnitude.
Despite the low level of new listings buyers have more options, with the number of available properties trending higher.
The lack of turnover is leading to a lift in the median number of days to sell (DTS). At 44 days, DTS are now clearly sitting above the long-run average of 39 days.
Kiwibank says the drastic tightening of credit conditions over the past 12 months continues to weigh on the market. The rapid rise in mortgage rates has reduced the amount potential buyers can borrow. In addition, many mortgagees are experiencing a sizeable increase in interest expense as they roll onto much higher fixed rates.
Tight credit conditions will weigh on the housing market for some time to come. Even if some fixed mortgage rates – such as the one and two-year – might be nearing the peak in the current cycle.
Meanwhile, Westpac senior economist Satish Ranchhod says it also looks like July was the peak for fixed rate mortgages, with some easing in rates this month.
“That should help to slow the rot in the coming months, though we still think that prices have further to correct.”
Westpac is expecting the Reserve Bank to raise the OCR by another half a per cent next week.
“We are seeing signs that interest rate hikes are dampening activity – along with the downturn in the housing market, both consumer and business confidence have plummeted, and household spending levels have softened,” says Ranchhod. “Because the economy is still grappling with strong price pressures, it will require tighter policy to offset.”
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