See how NZ's housing market withstands a 17% drop with insights from Squirrel's CEO
Over the past three years, New Zealand has witnessed a significant drop in house prices, with an average decrease of 17% nationally, and more than 20% in major areas like Auckland and Wellington.
Despite these figures, the market’s response has been unexpectedly muted.
David Cunningham, CEO of Squirrel, provided insights into this phenomenon.
Post-COVID market corrections
The sharp fall in house prices follows a substantial rise of approximately 45% in the post-COVID period, leaving house values still above their early 2020 levels. This pattern suggests the recent price drops are more of a market correction than a crisis.
“Most Kiwi still have a job, and their pay has increased significantly since 2020,” Cunningham said. This has helped homeowners manage despite rising interest rates and falling house prices.
Strategic banking resilience
The stability of New Zealand’s financial system plays a critical role in the housing market’s resilience.
Banks have adopted prudent lending practices, typically capping mortgages at 80% of a home’s value. This loan-to-value ratio (LVR) acts as a safeguard, allowing homeowners to build equity over time and providing banks with a buffer against defaults.
Even as property values decline, these measures ensure the financial system remains robust.
Economic factors and future outlook
Despite the downturn, the economic fundamentals in New Zealand remain strong, supported by high employment levels and sufficient bank capital to withstand potential shocks.
Looking forward, Cunningham is cautiously optimistic.
“With interest rates on the way down again, and most of us now rolling off onto lower rates, many people are through that pain, with further relief to come throughout 2025,” he said.
A stable market amidst adjustments
While the housing market has faced significant tests, the overall outlook is positive.
The banking sector’s foresight in managing loan risks, combined with ongoing employment stability, suggests that New Zealand is well-equipped to handle current and future economic challenges.
Expectations for modest price growth reinforce the resilience of New Zealand’s housing market, with experts predicting a 5% rise in 2025 after recent declines.
Read Cunningham’s full insights on LinkedIn.
