Much bigger drop than predicted for house prices

In the bank’s November Economic Overview, the economists say the weakening in the housing market has been widespread, but it has been particularly stark in larger centres. Notably, prices in Auckland have fallen 16%, while prices in Wellington are down a whopping 18%.

With interest rates increasing, Westpac is forecasting house prices nationwide will fall by a further 10% over 2023 and 2024 combined. Coming on the back of the falls already seen, that will leave prices down 20% from their peak in 2021  - the bank’s previous forecast was a 15% fall.

Because the downturn in house prices comes at the same time as other prices in the economy are rising, - including building costs and wages - that means “real” house prices are set to fall by 30% from their 2021 peak, says the bank.

“The combined impact of higher interest rates, large increases in the cost of living and a weaker housing market points to a significant slowdown in household spending over the coming years, says Michael Gordon, Westpac’s acting chief economist. “Many households will be forced to wind back their spending due to the mounting pressure on their finances. And many others will do so out of an abundance of caution.”