By Lucy Craymer
WELLINGTON (Reuters) -The New Zealand house price index saw its largest drop in 30 years last month and sales activity was particularly soft, fuelling expectations that prices might fall further than many economists had previously forecast.
The house price index, which measures changes in house prices on a like for like basis, fell for the 11th consecutive month and is now down 10.9% on October last year, according to data released by the Real Estate Institute of New Zealand on Tuesday. The median house price was down 7.9% on October last year.
Kiwibank economists said the house price data was a sobering read with the fall in the index its biggest since the early 1990s.
"Rising mortgage rates continue to weigh on house prices and sale activity," they said in a note.
House prices in New Zealand rose roughly 40% over the pandemic before peaking last November at levels repeatedly described by the central bank as unsustainable. However, as the central bank has aggressively hiked the cash rate, and mortgage rates have followed suit, prices have come off sharply.
Many economists expect that with the cash rate forecast to go higher, house prices still have further to fall.
Westpac said on Tuesday it now expects house prices to drop 20% from their peak, having previously forecast a 15% fall.
In its quarterly economic update, Westpac said 'real' house prices were in fact set were set to fall by 30% from their 2021 peak, given high inflation more broadly in New Zealand.
"That would completely erase the gains that we saw in recent years and take real house prices back to the levels we saw prior to the pandemic," it noted.
New Zealanders have a lot of wealth tied up in the housing market and falling house prices are expected to knock confidence and drag on spending in the coming months.