This driven by supply shortage and rate cut hopes, analysts predict
New Zealand house prices will likely increase again in 2024, fuelled by an ongoing supply shortage and expectations for interest rate cuts, according to a Reuters poll.
The Reserve Bank’s 20-month tightening cycle which took the cash rate from near-zero to 5.5%, may have ended in May – a campaign that has helped pull down the average house price by 15% from its peak in November 2021.
The price reduction was short of a roughly 20% correction most property market analysts forecast in May in the wake of a pandemic-induced property market boom that saw prices skyrocketing by more than 40%. Prices have begun to lift again on returning demand meeting limited housing stock.
The latest Reuters poll of 11 property market analysts said New Zealand prices will likely decline 4.8% this year – about half the 8% decline predicted in a May poll – before increasing 5% and 6% in 2024 and 2025, respectively, which was an upgrade from the 3.4% and 5% rise forecast in the previous poll.
“Whether or not we’re entering a new FOMO-style state in the housing market is yet to be revealed, but our money is on this not being the case, or at least, that it will not persist,” Miles Workman, senior economist at ANZ told Reuters, referring to the “fear of missing out” that sparked a market frenzy during the COVID-19 period.
“But as we get into 2024, we think the reality of higher-for-longer interest rates will set in, and that still-stretched affordability and rising unemployment will culminate in a very subdued pace of expansion in house prices.”
In a recent Reuters poll, economists had predicted that the central bank was done raising the OCR and would maintain it at 5.5% until early next year then lower it to 4.5% by year-end.
While lower interest rates will offer home buyers some relief, it was less clear what their impact was on purchasing affordability among first-time homebuyers, Reuters said.
The 11 analysts were in near split over an additional question on affordability, with six saying it would improve over the coming year and the rest saying it would get worse.
Just this week, the International Monetary Fund said house prices could stabilise in 2024, but affordability would still be a concern despite the fall in prices as mortgage rates remained high and low supply added to price pressures.
There was also no respite for potential homebuyers looking to rent instead.
Of the 11 analysts, six believed average rents will rise slightly for the rest of 2023, four expected the rise to be significant, while only one said average rents would fall slightly, Reuters reported.
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