I'd like to wish you a great New Year as we enter into the second phase of this market correction.
The property market's performance in 2023 will be largely dictated by interest rates. After a 3.6% increase over just eight months last year, there are signs that this will still increase further, as the inflation rate is consistently still at around 7%. In order to get inflation under control, the Reserve Bank and therefore, the government has to increase the lever that they always use to slow down or speed up the economy. That lever is the interest rate. This is important because it's the primary reason why central banks around the world have been aggressively increasing interest rates.
CoreLogic's final property market data for 2022 showed a 10% fall from the peak in the national home values to date. From 1 November 2021 to March 2022, the decline has been 4.3%. That's a steady decrease, but no cause for alarm. Remember, this is our first rate-rise cycle in more than a decade, so of course it's a big shock to the system. Furthermore, this price decline follows a 52% increase in Christchurch house values. So some perspective is useful while we watch the market bottom out in 2023 and recalibrate in early 2024.
Once interest rates stop rising, they'll likely remain consistent for a period while the local and global economy is monitored. During this time, thousands of borrowers will come off very low fixed interest rates and convert to variable rates, which will typically be double, possibly triple, what they were originally paying. This might result in people having to sell, as opposed to wanting to sell. The Christchurch inner city apartment market will be the one that will be hit the most. Properties that are in a cluster are always harder to sell when the market is tough and supply is plenty.
All the real estate statistics we commonly report on are showing a strong declining trend. Lower listing numbers (down about 16% annually from October 2021 to October 2022), lower sales volumes (down about 38% from December 2021), house prices decreasing by approximately 13% (from December 2021 to December 2022), and higher days on market (from 29 days in December 2021 to 40 days in December 2022 on average.)
The REINZ Property Report (18 January 2023) indicates that the larger regions are showing a significantly higher decrease in their median sale prices. Auckland saw a 18% decrease in the median price, similar to Wellington with 20% decrease. Compare this to the West Coast, which stayed static at 0% and Southland, which only had a 4.9% decrease.
I advise homeowners not to get too caught up in the details of market analysis this year. Enjoy your home, continue with your loan repayments, and just remember that property is a long term game. If you can hold onto your home, with interest rates hitting potentially 8 - 9%, then great. If you can't, the sooner you sell, the better, as the market could possibly go down another 15-20%.
If you would like to hear more about what I see in store for the year ahead, please take a moment to watch the below videos.
Whatever your property goals are for 2023, I wish you all the very best. Please don't hesitate to get in touch if you need any advice, or want to have a chat about options for your property this year.
With kind regards,
Nathan Najib and the team