Expect house prices to fall in the next two years when downward pressure sets in, warns an investment adviser.

Analysis of recent house prices and new home construction by Jarden Securities indicated that construction was moving rapidly but prices were likely to fall.

The mixed price analysis found that the national median house price at the end of December next year was $ 746,192, a 6 percent decrease from the forecast of $ 792,574 later this year. Followed by a further decrease of 3 percent by 2023.

Grant Swanepoel, director of equity research at Jarden, said some people felt house prices hadn't come down.

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People didn't expect prices to fall because that was the experience about 15 years ago when prices defied mortgage rate hikes and kept going up, he said.

"But in the 1970s prices fell nearly 40 percent over the decade and for some shorter periods up to the year 2000.

"The reason prices didn't fall in the mid-2000s was because it was a time when residential real estate was being revalued as an asset class. We assume that there will be no further revaluation available for the housing market in the current cycle. "

House prices could drop 6 percent by the end of next year.

MONIQUE FORD / stuff

House prices could drop 6 percent by the end of next year.

Downward pressure is now building on house prices, said Swanepoel.

Rising mortgage rates would put new homeowners and investors under pressure, another reason being the limited ability to raise rents.

"Resources for new homeowners are also depleted as mortgage payments (as a percentage of household spending) recently exceeded 28 percent and exceeded the 12-year average of 26 percent."

These factors led to Jarden's expectation that prices would fall as the supply shortage continued to decrease, even though the shortage would continue for many years to come.

Swanepoel said this, along with economic growth returning to a range of 2.5-3.5 percent, would put pressure on construction volumes.

"We anticipate a sharp decline in volumes for 2022 and 2023, albeit attenuated by the current momentum and government interventions to improve the under-supply on the market."

While most commentators are not forecasting price drops, there has been a growing consensus that the property market is slowly slowing down and price increases have subsided.

Recent figures from CoreLogic and Quotable Value showed that the rate of monthly and quarterly price increases had continued to slow over the past few months.

Grant Swanepoel, director of equity research at Jarden, says downward pressure on house prices is growing.

Delivered

Grant Swanepoel, director of equity research at Jarden, says downward pressure on house prices is growing.

And the Real Estate Institute's July numbers, released Thursday, had sales down 11.7 percent from July last year and 5.3 percent from June.

ASB senior economist Mike Jones said the institute's numbers showed that activity had slowed further, leaving the bank's expectation of the market cooling intact.

However, he said there was a risk the boom would "last longer," compared to the bank's projections of a further 15 percent hike in house prices by the end of the year.

Miles Workman, chief economist at ANZ, said the market will eventually slow down, with annual price increases expected to be modest over the next year.

Official cash rate hikes, stricter credit restrictions, recent tax policy changes, supply catching up with new demand, and affordability restrictions are all major headwinds, he said.

"In fact, while the market has proven to be quite resilient over the past few months, the risk of all of this coming to a head and culminating in a much stronger adjustment in house prices than we expect is paramount.

"It will likely be paramount for policy makers as they attempt to create a soft landing for housing with as little economic impact as possible."

source https://seapointrealtors.com/2021/08/12/house-prices-could-fall-6-by-the-end-of-next-year-as-higher-mortgage-rates-rise-investment-firm-warns/

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