Goldman Sachs has released modelling on New Zealands housing market, which forecasts huge declines in both dwelling construction and house prices on the back of the Reserve Bank of New Zealands (RBNZ) aggressive monetary tightening, alongside the lagged impact of macroprudential tightening.

Goldman notes that mortgage rates have risen, although the impact of this increase on most households wont fully realise until mid-2023, given the majority of mortgages in NZ are on 1-2 year fixed terms. In turn, these rate hikes have significantly reduced mortgage demand:

Activity in new construction has also slowed, with Goldman tipping building consents to fall by around 30% from peak-to-trough by end-2024, before stabilizing at around 2019 levels. In turn, Goldmans base case is that residential investment will peak in 2H2022, before falling by around 13% by late 2024.

New Zealand dwelling prices have already fallen by 11% from the 4Q2021 peak (with Auckland prices down 16% from peak), whereas sales volumes have eased to levels last seen in 2011. And Goldman believes that dwelling prices will continue to decline alongside higher mortgage rates. It therefore, now expects a peak-to-trough price decline of around 20-25% before stabilizing around late 2023 or early 2024.

The forecast 20-25% decline in New Zealand house prices based on the REINZ house price index would be the largest on record (see right-side chart directly above), surpassing the 2008-09 Global Financial Crisis crash.

It would also arrive just in time for next years election, and could see Prime Minister Jacinda Ardern thrown out of office.

Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also Chief Economist and co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Ardern horrified as New Zealand faces record housing crash - MacroBusiness