Kiwi house prices to rise modestly next year on high interest rates
NEW Zealand house prices are forecast to increase in the next few years but at a more subdued speed than the recent past thanks to a slowing economy and relatively high interest rates, a Reuters poll found.
Property prices soared 40 per cent during the Covid pandemic as many existing homeowners reacted to lockdowns by rushing to find more space, sometimes at any price.
But a subsequent recovery in house prices following a roughly 15 per cent correction from their pandemic peak was forecast to be mild. The average property price is expected to end the year about where it began 2023 as the market bottomed out earlier than expected despite historically-aggressive rate hikes.
Unlike expectations for most of its peers, there is still the possibility the Reserve Bank of New Zealand (RBNZ) raises borrowing costs once more before considering reductions.
A Nov 16-29 Reuters poll of 11 property analysts forecast average home prices to rise 4 per cent next year and 5 per cent in 2025 compared with expected rises of 5 per cent and 6 per cent in an August poll.
The cumulative impact of 525 basis points worth of RBNZ hikes is still being felt as homeowners and new home buyers face sharply higher mortgage rates compared with a few years ago.
Kelly Eckhold, chief economist at Westpac New Zealand, said it would take at least three years for average house prices to approach their previous peak.
“The fact that households are having to use increasingly larger proportion of their incomes to service mortgages, it may well be that this continues and perhaps even intensifies over the period ahead which would potentially present downside risks to the economy.”
A separate Reuters poll taken last month forecast economic growth in New Zealand cooling to 0.9 per cent next year from 1.1 per cent in 2023.
Sharply higher construction costs in recent years are expected to keep the supply of new homes relatively low compared with rising demand from strong population growth, thanks in part to a post-pandemic lift in immigration. As in most other countries, that is expected to keep upward pressure on prices.
Asked what would happen to the supply of affordable homes over the coming two to three years, five of eight analysts said it would worsen. Only three said it would improve.
Even among those who expected affordable housing to improve, both ANZ and Kiwibank, among the largest banks in the country, said it would not increase enough to keep up with demand.
“The Kiwi housing market is undersupplied. We simply don’t build enough houses to meet demand and we’re in the middle of a migration boom,” said Jarrod Kerr, chief economist at Kiwibank.
“We will see a lift in the delivery of affordable homes but it won’t be enough to balance the housing market.”
The RBNZ’s latest monetary policy report showed the central bank raising rates once more next year before cutting in Q1 2025, while inflation, which directly and indirectly includes the housing market, was not expected to return to its 1 per cent to 3 per cent target until Q3 2024. REUTERS
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