House prices fell about 16% in nominal terms from the November 2021 peak but “inflation greased the wheels” and so the fall in real terms was a much greater 25%.
But for house prices to get back to where they wre in real terms and relative to wages in 2010, that would imply house prices would need to halve, Zollner said.
To get house prices back to 1992 levels, house prices would need to fall about 70%.
Whether the voting public would tolerate such an extreme adjustment is an obvious question.
But housing minister Chris Bishop said late in February that he has set a target of having homes costing between three and five times household incomes – that is over a 10 to 20 year period.
House prices currently are more than eight times incomes in Auckland and nearly seven times in the rest of the country, although that's down from more than 12 times and more than nine times when prices peaked.
Bishop is aiming to get there by flooding the market with new housing, including getting local councils to earmark 30 years' worth of land for housing development, including increasing housing density.
Zollner said debt servicing ratios now are still much lower than they got to during the pre-GFC housing market boom – she is forecasting a peak at about 11 times nominal disposable incomes compared with the pre-GFC peak at 16%.
“Consumer confidence is just unbelievably low,” and that is very co-related to what's been happening to inflation, even though wages and benefits have actually kept pace with inflation, she said.
People absolutely despise inflation and “that's why inflation targets were introduced in the first place.”
“The household sector is actually quite resilient – not everyone, we're talking about the average person here, and absolutely there are some people doing it tough.”
Some people have seen their mortgage payments triple. However, “there's actually been very little blood on the floor.”
Zollner noted the last time the Reserve Bank significantly raised its official cash rate (OCR), it peaked at 8.25% - that was in July 2007 and it remained at that level until July 2008.
Whether the OCR has already peaked at 5.5% this time around “is conditional on inflation continuing to fall.”
Zollner wrongly guessed RBNZ would hike the OCR last week after a number of hawkish appearances by RBNZ chief economist Paul Conway and governor Adrian Orr, but the central bank's tone and forecasts when it presented its latest monetary policy statement surprised in its dovishness.
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