Economists share their take on the state of house prices in the upcoming months
Most market commentators believed that house prices in New Zealand were set to rise once more in 2024, as reported in an article by NZ Herald.
Tony Alexander, an independent economist, expected that prices will be rising by up to 10% in 2024 while also believing that it will continue to rise well beyond the next year. Economists from Westpac and Kiwibank were forecasting increases ranging from 7% to 8% while CoreLogic analysts expected a rise of about 5%.
Why are housing prices forecasted to rise in 2024?
Over the past year, New Zealand saw more than 100,000 people enter the country – the highest surge in the population growth seen in decades. However, there were fewer new homes being built to keep up with the uptick in population, as Alexander noted that the number of building approvals for new homes have been dropping since October of the previous year.
“In an environment of strong population growth, this decline in new house supply can do only one thing to prices – push them higher,” said Alexander.
Jarrod Kerr, chief economist from Kiwibank, said that New Zealand will not be able to build enough houses to sustain the increased number of new migrants in the country.
Home loan interest rates have also contributed to the belief that house prices will be rising. Despite economists believing that interest rates were now stabilized, they are still high enough to make many people have a difficult time paying back their home loans. Most economists said that this pressure will make it unlikely for the market to see new buyers anytime soon.
While the public is still reeling from the cost-of-living crisis, Kerr believed that inflation would drop below the 3% target of the Reserve Bank in early 2024. This may urge the central bank to cut the official cash rate as early as May, lowering the interest rates and raising house prices. However, Kelly Eckhold, chief economist at Westpac, believed that inflation would remain high throughout 2024.
While first-home buyers were quickly taking up 24-28% of the houses going into the market, policy changes by the government will be reintroducing investor-friendly tax measures which meant that these buyers will be facing more competition for homes.
Kelvin Davidson, chief property economist at CoreLogic, does not expect to see a surge of investors coming back to the market because of high interest rates and low rental yields. He explained that these left investors with a weekly cash-flow loss on their properties just to pay off mortgages.
Davidson said that only 65,000 homes were listed for sale in the previous year, marking the lowest level seen in 40 years. While more homes are beginning to be added to the market, the number of listings would still be below the 95,000 average, even if 10% more houses were put up for sale.
