The housing market slump is over. The consensus of the country’s bank economists is that prices have hit or are close to hitting rock bottom – although what happens next is less clear.
Homeowners who are expecting prices to bounce right back after a near 18% drop may have to wait for the market to come back to life again.
Post-Covid, the nationwide median house price jumped nearly 50% from trough of $620,000 to a peak of $925,000 in November 2021, fuelled by record low interest rates, lower loan to value ratios and border restrictions.
However, Kiwis are unlikely to see that potent mix of inflationary factors again any time soon.
Start your property search
BNZ chief economist Mike Jones believes house prices will “bobble along the bottom a bit for a while”, with “high mortgage rates, stretched affordability, and sluggish economic conditions all look set to hold back the upturn”.
Jones expects to see house price growth resuming over the second half of this year, with modest rises of 1-1.5% across the board per quarter. Kiwis should expect some “near-term jostle in the month-to-month housing numbers”, he says, adding that some regions may be slower to the revival.
Read more:
- Tony Alexander: The towns property investors should be targeting before prices start to rocket
- What the Reserve Bank’s interest rate surprise means for house prices
- Auction fight for best view in Auckland sees 1970s Remuera home sell for $7.1m
And even though the Reserve Bank has signalled that 5.5% is as high as the official cash rate will go, there is a large number of mortgage-holders who have yet to roll onto higher rates, and first-home buyers face high test rates, which will put a limit on how much they can spend. “RBNZ data show the major banks are testing new borrowers on 8.5-9.0% mortgage rates, and rates don’t look like they’re going to come down any time soon,” Jones says.
Another factor to bear in mind is that houses, while cheaper than they were in 2021, are still far from “cheap”.
“Bear in mind that, if we’re right on this, NZ house prices would be levelling out at still very high levels. About 20% up on pre-Covid levels in fact, and still elevated on any number of valuation metrics,” says Jones.
Kiwibank chief economist Jarrod Kerr, who had been predicting a 20% fall in prices from peak to trough, thinks the market is “very close to the bottom”, but he’s still waiting for spring data to get a better handle on what’s happening. “That will be the litmus test,” he says.
Kerr says he can see some green shoots emerging in the housing market. “What we’re hearing from people on the frontline is things are changing.” The biggest influencing factor for the market is the outlook for interest rates. “If the RBNZ has reached the peak in the cash rate, with rate cuts coming next year, then the strong headwind of higher mortgage rates will turn into a tailwind,” he says.
How fast those rates will come down the other side depends on a variety of economic factors. “The central view is that the RBNZ will start cutting rates from February next year, and slowly take the cash rate back towards a neutral 2.5% setting,” says Kerr.
Westpac senior economist Michael Gordon believes that New Zealand’s average house prices have now bottomed out. “Interest rates near their peaks and the resurgence in migration provides a fresh source of demand,” Gordon wrote in the bank’s latest economic update.
Kiwibank chief economist Jarrod Kerr: “What we’re hearing from people on the frontline is things are changing.” Photo / Fiona Goodall
“We’re forecasting only a modest lift in prices from here on, but we’ll watch the data carefully. History shows that it’s difficult to predict how far the housing market will go once it starts to gain some momentum.”
ANZ’s economists believe the market has hit the bottom but it doesn’t expect prices will stop falling in every region. “Some ‘catch-down’ is expected.
“Prices are down on an annual basis in every main region, but there is still significant regional divergence. Wellington is the clear under performer, with prices down 18.4% y/y on a 3-month moving average basis, and Auckland not far behind at -15.4% y/y. Southland is the outperformer, with prices down 5.1% y/y.”
The divergence is the differing increases in house prices in different regions during the Covid boom, the timing of those regional booms, and population growth, the ANZ economists say.
They note that the uptick in auction clearance rates in Auckland suggests the country’s largest market is coming back to life. “With net migration surging to new highs and the residential construction sector slowing on the back of rising interest rates, new demand for housing is now significantly outstripping new supply. In other words, New Zealand has a widening housing deficit. ”
ASB chief economist Nick Tuffley thinks that house prices “are at or close to the bottom” and points out that even if we have hit rock bottom, prices are still 19% higher than at the start of 2020 when the pandemic hit.
He pointed to his colleague Nathaniel Keall’s forecast in April, which was still the team's current view: “From the trough we expect marginal growth at the end of 2023, and for prices to rise around 7.5% over 2024 and 16% over 2025. The sharp surge in migration is a key factor in both stabilising house prices and then driving them up, coupled with the start of falls in interest rates over 2024”.
- Click here to find properties for sale
