House prices have nearly doubled in the last seven years, report says
New Zealand’s housing market has been red-hot during the COVID-19 pandemic. However, with the government making efforts to cool it down, experts have now identified how long it will take until those reforms start changing the market.
House prices across New Zealand have nearly doubled in the last seven years, mainly due to interest rates being slashed from 3.50% to 0.25% over that period, according to Reuters.
In a Reuters survey, 10 property market analysts said they expect house prices to increase by 20% this year after skyrocketing by 30% in the past 12 months. However, with interest rates set to increase in the coming months, some, at least, expect the housing market to cool down by 2.5% next year and in 2023.
“While we think the annual (house price rise) is very close to its peak, the ratio of house prices to incomes is simply off the chart,” said ANZ chief economist Sharon Zollner, as reported by Reuters. “Properties available for sale remain very low, and the only real solution to this madness is to build more houses.”
However, Zollner suggested that it could still take six years for the ratio of house prices to return to pre-COVID-19 levels even if house price inflation remained zero and income growth ran at a solid pace of 5% per annum.
“Without outright house price falls, it’s a slog,” she added.
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Still, only two property market analysts in the Reuters survey expect a fall in prices, with one of them expecting prices to start falling in 2023. Meanwhile, all but one who answered a question about affordability over the next two to three years said it would stay the same or worsen.
Infometrics principal economist Brad Olsen stated that measures introduced by the government and the Reserve Bank of New Zealand (RBNZ) this year had failed to cool down the market, with nationwide affordability continuing to worsen.
“(For) house price to income ratios to fall back from around seven to the more affordable ratio of three would require a 56% fall in house prices, or a 130% increase in incomes, meaning improved affordability will take a considerable time,” Olsen said, as reported by Reuters.
Still, all of the respondents expect the government and RBNZ measures to have a significant impact on the market, with higher interest rates or tighter monetary policy identified as the biggest downside risk.
“The house always wins ... We expect that house prices will continue to rise over the coming year, but that the pace of increase will slow as mortgage rates lift from their recent lows,” said Westpac chief economist Michael Gordon, as reported by Reuters.
“That’s likely to take some of the steam coming out of the housing market,” he continued. "And combined with changes to the tax system, the middle part of the decade is likely to see some modest price declines.”
