WELLINGTON, New Zealand (AP) — New Zealand house prices fell year-on-year for the first time in more than a decade, a report showed Thursday, as rising interest rates finally halted a dizzying boom that had only gained momentum after the coronavirus pandemic first hit.
The Real Estate Institute of New Zealand reported median prices fell 1.8% in July when compared with the same month last year. The decline was more pronounced in the biggest city of Auckland, where prices fell 5.6%, and in the capital, Wellington, where prices fell 5.9%.
Sales also declined by more than one-third. Up until its peak last November, the New Zealand property market had been among the frothiest in the world.
Already booming when COVID-19 first hit, the market surged as interest rates were cut to record lows and the government and central bank pumped money into the economy to keep it afloat.
Even with Thursday’s modest decline, the average price of houses nationwide remained 810,000 New Zealand dollars ($517,000), putting them beyond the reach of many young people looking to buy their first home. In Auckland, the median price remained NZ$1.1 million.
The fall comes at a time that unemployment remains near record lows at 3.3%, but when economic growth has stalled and inflation has risen to 7.3%. Mortgage interest rates are hovering at around 5% to 6%, up from as low as 3% a year ago.
Brad Olsen, the principal economist at consultant company Infometrics, said that interest rates were the main factor behind the fall.
“You’ve got a lot of people out in the market who just aren’t able to get the same finance that they were a year before because of how much interest rates have increased,” Olsen said. “The banks are being a bit more cautious given affordability challenges and not wanting people to overburden themselves.”
Olsen said he expected prices to continue declining through the rest of the year, although he thought an all-out crash was unlikely because he wasn’t seeing signs of a sudden acceleration in the declines.
“This is just the other side of the rollercoaster starting to come back down, but we are actually still pretty high off the ground,” Olsen said.
The last time the Real Estate Institute recorded an annual price decline was in July 2011.
“In 2021, we saw low housing stock, increasing competition between buyers and a general sense of urgency,” said Jen Baird, the institute’s chief executive. “The reverse is now happening.”