The Kiwi economist who’s putting his money where his mouth is on house prices

ANALYSIS: One of the biggest questions buyers worldwide persistently ask is: “Is now the right time to buy a property?” The trouble with us economists is that we don’t often publicly put our money where our mouths are.

I was planning to buy a house in mid-2025. But after analysing recent sales and interest rate data, I’ve decided to pull forward that decision to now. Here are the six reasons why.

1. Interest rates

The one-year mortgage rate has tumbled from 7.4% at the start of the year to 5.99% now (and banks are discounting this to 5.79% behind the scenes).

This means that people can borrow more and still keep their mortgage payments the same. A $500,000 mortgage would cost $800 a week when interest rates were 7.4%. At current interest rates, that same $800 a week, can stretch to $590,000 worth of borrowing - $90,000 more.

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Also worth considering is that I won't be the only one noticing this. Lower rates will likely lead to more competition at auctions and elsewhere. The fact that prices have hit the bottom and will likely rise in 2025 means if I delay buying until next year, I might have to spend more to get the same type of house.

2. Banks are loosening their lending criteria

When you apply for a mortgage, you might pay a 6% interest rate, but the bank will actually test your application to see if you can afford to repay your debt at around 8%. That’s called the servicing test rate; the higher that is, the less you can borrow.

But, like interest rates, servicing test rates are falling. At the start of the year, Westpac would test your mortgage at 9.1%. That’s fallen by almost 1%. So if you could afford to borrow $500,000 this time last year, you could borrow around $45,000 more today.

In short, lower interest rates will motivate buyers to bid one last time at auction, but the lower servicing test rate will provide them with the means to do so.

3. House prices are low (as far as house prices go)

Houses are still expensive in New Zealand, but they are generally selling for 15.8% less than they were at the peak of the market, in late 2021 (and in Auckland, prices are 21% below their peak).

The house-price-to-income ratio is lower now than it was just before Covid struck, with current house prices up 23% on 2019 prices, and the average income up 27% over the same period.

It’s not an exact comparison because interest rates are higher today, but I want to buy a house, and I either do it today or I wait. These numbers make me feel like today is a better time to buy than in 6–12 months' time.

4. House prices feel like they are near the bottom of the market

House prices bottomed out in May 2023 and then increased over the following nine months before falling again. But the pace of this year's fall has slowed in recent months.

From March to May, property prices fell an average of 0.9% a month. From June to August, property prices dropped an average of 0.3% a month.

Opes Partners economist Ed McKnight: "Lower rates will likely lead to more competition at auctions and elsewhere." Photo / Fiona Goodall

They then rose 1% in September. One sunny day doesn’t make a hot summer, but we are heading into the warmer months and property prices tend to increase faster in spring and summer.

So, I don’t have months and months of data showing that property prices are increasing. But if I wait for that data to come through, I will have missed buying at or close to the bottom of the market.

5. There are lots of properties available for sale

There are more than 40,000 residential properties for sale on OneRoof - 24% more than this time last year. New listings for October were up 24% on new listings the month the before. We haven’t seen listings volumes this high since 2015.

6. Properties still take time to sell - that means more time to negotiate

During the Covid property boom, Auckland properties took around 32 days to sell.

Now properties are taking an extra two weeks to sell. And that means that buyers have more time to look at properties and negotiate a good deal.

Less than half of properties going to auction are selling, so even if I turn up to auction and the sale doesn’t go through, there is more room for negotiation than there usually is.

- Ed McKnight is the economist at property investment company Opes Partners