Lessons from a silent housing crash

By Greg Smith, Head of Retail at Devon Funds

Initial angst over the pandemic was replaced with relief as central bankers and governments pulled out the punch bowl, stimulating a Covid-stricken economy with a raft of measures which included taking interest rates towards zero. Spending thrived and economic activity soared as a result. The property market also ballooned – the narrative for the latter was that it was “a good time to buy a house” because it was cheap to borrow. Any notion of value, long term affordability, and what the future might bring, was put aside as a thought for another day. 

After any big party there are usually a few hangovers, and our economy has been left with a sore head in the form of a recession. Free lunches often come with a catch, and soaring inflation has seen “easy money” taken away, with interest rates rising rapidly.  Cost of living pressures have reverberated through the economy, with a collapse in property prices rubbing salt and financial pain in the wounds for anyone that entered or moved up the housing ladder in 2021.

The NZ housing market has crashed since the peak in late 2021, with the house price index falling 19% in nominal terms, and some 29% in real terms when allowing for inflation. In Auckland the numbers are 21% and 31% respectively.