New Zealand house prices are forecast to drop further this year, pressured by higher interest rates. It is expected for a 20% peak-to-trough correction, roughly similar to a survey taken three months ago. In one of the most unaffordable housing markets in the world home prices have fallen a little over 15% from November 2021 peaks, a fraction of the 40% they soared during the pandemic as home buyers chased more space with near-zero interest rates.
Despite the Reserve Bank of New Zealand hiking rates by 525 basis points to 5.50% since October 2021 and maintaining a hawkish stance, the outlook for house prices has largely stayed the same from three months ago. Median forecasts of 11 property market analysts taken May 16-31 estimated home prices to decline 8.0% this year, almost the same as a near-9% fall predicted in a February poll. But analysts say the market is close to a turning point and forecast to rise 3.4% on average next year.
"Higher mortgage rates and a less acute housing shortage have substantially cooled the housing market. With net migration surging, mortgage rates getting close to their peak...we expect the market is close to a turning point," wrote Nathaniel Keall, Economist at ASB. "We expect prices to bounce back only marginally over the latter part of 2023, but a migration-driven sharper rebound is more likely than another significant downturn."
A near two-thirds majority of analysts, seven of 11, who answered an additional question said a significant rebound in home prices was more likely for the rest of the year. The remaining four said a significant downturn. The improved outlook was likely to restrict some of the fall in home prices. Indeed, median forecasts showed analysts predicted a peak-to-trough fall of 20%, down only slightly from just under 22% in the previous poll and close to the RBNZ's peak-to-trough forecast of 17%.
Forecasts were in a 14.0%-27.5% range. The central bank has noted there were early signs house prices may not decrease as much as previously expected, dashing hopes of many first-time homebuyers. However, a majority of analysts who answered a separate question, six of 10, said purchasing affordability will improve in the coming year, although many acknowledged any change would be slight. The remaining said it would worsen.
“We are seeing a faster gain in incomes and a decline in prices, so that is making things a bit more affordable,” said Jarrod Kerr, Chief Economist at Kiwibank. The interest rate people are paying is much higher than what it was a year ago and that is eating into the affordability. From an interest rate point of view, it’s obviously become more expensive and more inhibitive.