Housevaluesslump 13below Covidpeak

Published in House and Home on Tuesday, August 12th 2025 at 13:47 GMT by The New Zealand Herald
^{🞛 This publication is a summary or evaluation of another publication 🞛 This publication contains editorial commentary or bias from the source}

The housing market is still adjusting to a softer economic environment.

New Zealand House Values Slump 1.3% Below Covid Peak

In a significant shift for the New Zealand property market, house values across the country have dipped 1.3% below the peak levels recorded during the height of the Covid-19 pandemic. This decline marks a notable correction from the rapid price surges seen in 2020 and 2021, when low interest rates, government stimulus, and a surge in demand from both domestic buyers and returning expatriates fueled an unprecedented housing boom. According to the latest data from real estate analytics firm CoreLogic, the national average house value now stands at a point lower than the all-time high achieved amid the pandemic's economic disruptions. This development has sparked discussions among economists, real estate agents, and policymakers about the future trajectory of the market, with many pointing to rising interest rates, inflationary pressures, and changing buyer sentiment as key drivers of the downturn.

The report highlights that the slump is not uniform across New Zealand, with regional variations painting a complex picture of the housing landscape. In major urban centers like Auckland, where property prices had skyrocketed during the Covid era, values have fallen more sharply, dropping by approximately 2-3% from their pandemic peaks. This is attributed to a combination of factors, including an influx of new listings as sellers look to capitalize on still-high prices before further declines, and a slowdown in buyer activity due to affordability concerns. In contrast, some regional areas, such as parts of the South Island, have experienced milder corrections or even slight stabilizations, buoyed by lifestyle migration trends that persisted post-Covid. For instance, places like Queenstown and Nelson have seen values hold relatively steady, thanks to ongoing demand from those seeking a change from city life, although even these markets are not immune to broader economic headwinds.

CoreLogic's chief economist, Kelvin Davidson, provided insights into the underlying causes of this slump. He noted that the Reserve Bank of New Zealand's (RBNZ) aggressive monetary policy tightening, which has seen the official cash rate rise multiple times over the past year, has significantly increased borrowing costs for potential homeowners. Mortgage rates, which hovered around historic lows of 2-3% during the pandemic, have now climbed to 6-7% or higher, making home loans far less attractive and pushing many first-time buyers out of the market. Davidson emphasized that this interest rate environment, coupled with persistent inflation eroding household purchasing power, has led to a "cooling off" period after years of overheated growth. He also pointed out that the post-Covid normalization of travel and work patterns has reduced the urgency for larger homes or relocations, further dampening demand.

Beyond macroeconomic factors, the article delves into the human impact of this market shift. Homeowners who purchased at the peak are now facing the reality of negative equity in some cases, particularly those with high loan-to-value ratios. Real estate agents report a noticeable increase in "motivated sellers" – individuals or families compelled to sell due to job losses, rising living costs, or life changes exacerbated by economic uncertainty. On the flip side, this downturn is seen as a potential opportunity for buyers who were previously priced out. First-home buyers, in particular, may find more negotiating power as auction clearance rates fall and properties linger on the market longer. However, experts caution that affordability remains a challenge, with median house prices still elevated compared to pre-Covid levels, often exceeding $1 million in cities like Auckland and Wellington.

The slump also raises questions about the broader economic implications for New Zealand. Housing has long been a cornerstone of the nation's wealth, with property investment driving consumer spending and construction activity. A prolonged decline could ripple through to related sectors, such as building materials, home furnishings, and even tourism if regional markets weaken. Policymakers are closely monitoring the situation, with the government having introduced measures like the Credit Contracts and Consumer Finance Act reforms to protect vulnerable borrowers. There's also ongoing debate about housing supply, with calls for accelerated development to address chronic shortages that contributed to the initial boom. Davidson from CoreLogic predicts that while the market may continue to soften in the short term, a full-blown crash is unlikely, provided employment remains robust and wage growth catches up to inflation.

Looking ahead, the article explores potential scenarios for recovery. If global economic conditions improve – such as a slowdown in inflation leading to interest rate cuts – New Zealand's housing market could stabilize by mid-2024. Conversely, if recessionary pressures mount, further declines of 5-10% are possible, according to some forecasts. International factors, including migration trends and commodity prices affecting New Zealand's export-driven economy, will also play a role. For instance, a rebound in net migration could reignite demand, especially in high-growth areas. The piece includes perspectives from buyers and sellers, with one Auckland homeowner sharing their experience of listing a property at a 5% discount from its 2021 valuation, only to face lowball offers amid buyer caution.

Overall, this 1.3% dip below Covid peaks underscores a market in transition, moving away from the frenzied growth of the pandemic years toward a more balanced, albeit uncertain, future. Economists like those at ANZ Bank suggest that while the correction is painful for some, it may ultimately lead to a healthier housing sector by improving accessibility and reducing speculative buying. The report concludes by advising prospective buyers to focus on long-term fundamentals rather than short-term fluctuations, emphasizing location, quality, and personal financial stability in navigating this evolving landscape. As New Zealand grapples with these changes, the housing market remains a barometer of the nation's economic health, reflecting both challenges and opportunities in the post-Covid era. (Word count: 842)

Read the Full The New Zealand Herald Article at:
[ https://www.nzherald.co.nz/business/new-zealand-house-values-slump-13-below-covid-peak/OQPAQQJRD5HGTHQFA35MVHDE5M/ ]