ANALYSIS: The last four years have been a rollercoaster ride for the housing market.
House prices dipped in the months after Covid hit but then jumped 40%, with the nationwide average property value peaking at $1.09 million in February 2022 before dropping 14% and bottoming out at $943,749 in June this year.
Since then, the nationwide average property value has crept up almost 3%, with momentum building in most regions, but specifically in the major metros.
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But what will the story be in 2024? Will prices continue to climb, and if so by how much?
Here are my 12 predictions for how the housing market will perform in 2024.
1. January – Everyone has an opinion about property
Every year, families around New Zealand gather for BBQs and get-togethers. This is where the armchair economists come out and pronounce their predictions.
These well-meaning family members often sound confident. So, it’s tempting to think their analysis is correct. This is the Dunning-Kruger effect.
When someone learns a little about a topic, they get confident and overestimate their expertise. So it’s tempting to think, “This person knows what they’re talking about”. Just be careful before you start taking Uncle Joe’s word as gospel.
2. February – Building consents crash
Building consents peaked in February 2022, with 4200 consents issued that month. Today, consents per month have fallen to about 3000. That trend is likely to continue. Property prices have fallen while construction costs have gone up.
Many developers have paid a lot of money for land. If they build today, they won’t be able to sell them for a profit. So many developers will sit on their hands waiting for property prices to rise.
3. March – The average Kiwi notices property prices are bouncing back
Property prices have bottomed out across most of New Zealand. Depending on which data you look at, they are up 2-4%. That’s not enough for the average punter on the street to notice. But once we get to March, Kiwis will likely change their tune. Expect the water-cooler conversations to become more positive.
4. April – Lower taxes for property investors
By April, National and Act’s lower property taxes will start to phase in. At that point, the bright-line test will likely go back to two years. These policies have already been announced. But once they take effect in April, this will contribute to a changing of the tune.
5. May – Interest rates still hurting investors’ cashflow
ANZ thinks interest rates will peak in March 2024. Even if that’s true, by May, interest rates will still be high. This will continue to hurt property investors’ cashflow. OneRoof’s data partner Valocity estimates that over nine in 10 properties bought today are negatively geared.
6. June – National cuts KiwiBuild
National has already announced that they plan to scrap KiwiBuild. It wants to use the money to incentivise councils to consent more properties. This probably won’t make much difference to the number of consents issued in 2024. But it could sow the seeds for a recovery in the residential construction sector in 2025 and 2026.
7. July – Inflation really starts to fall away
Inflation is currently 5.6%, having peaked at 7.3% last year. By the time new data comes out in July, inflation will likely be substantially lower. The banks expect inflation to be between 2.5% and 4% at that point.
Last month, the Reserve Bank released new inflation forecasts. It thinks inflation will be back under 3% in the third quarter of 2024.
8. August – Rents continue to go up
Our population is growing fast. Over the last year, migration added 118,800 to our population. These people need somewhere to live. That puts pressure on the rental market. I’m picking that rents will go up faster than 5%.
9. September – Debt-to-income ratios (DTIs) come in
By September, I’m picking that Reserve Bank Governor Adrian Orr will bring in debt-to-income (DTI) ratios. That will make getting a mortgage for an existing rental property harder. New builds won’t have to follow this new rule. Once again, the Reserve Bank is pushing property investors towards new builds. It wants to grow the housing supply.
10. October – Interest rates start to fall
By the end of the year, we should see interest rates lower than they are today. It could be a bit sooner. By October, I think you’ll notice the falls. Wholesale rates are trending down. That means it’s costing the banks less to lend you money for a mortgage. The one-year interest rate could be in the low-to-mid sixes by the end of next year.
11. November – Some builders go bankrupt
The property market has been slow over the last year. That hasn’t impacted developers’ bank accounts too much. They sold lots of houses in 2021 and have been finishing them over the last 2 years.
Developers get paid when they finish houses. So they’ve had money coming in the door even while they haven’t been selling much. But that impact will come. Once they’ve finished their pipelines, some builders will go bust.
12. December – We’ll know how many of these predictions are correct
Economists make predictions and forecasts, knowing that the exact details will be wrong. We expect to be wrong. The purpose of making forecasts and predictions is to get a sense of what could happen and how to prepare for it. It’s not to get everything exactly right. If more than half of these predictions are correct, I’ll be happy. By December next year, we’ll see.
- Ed McKnight is the resident economist at property investment company Opes Partners
