New Zealand House Prices Expected to Rise

By Devayani Sathyan
BENGALURU (Reuters) – New Zealand house prices are forecast to reverse a recent decline, rising 6% next year due to anticipated interest rate cuts from the Reserve Bank of New Zealand, according to a Reuters poll of property strategists.

Despite aggressive interest rate hikes, home prices remain just 19% below their peak in November 2021, which is considerably less than the 40% surge observed during the COVID-19 pandemic.

While interest rates increased from 0.25% to 5.50% between October 2021 and May 2023, this did not lead to a market crash but rather cooled an overheating market.

Average house prices dropped nationally from a peak of NZ$800,000 ($500,960) in March to NZ$753,000 in July, according to REINZ data. The median forecast from an August 20-30 survey of 11 property market analysts projected a 1.0% increase this year, a revision from the 4.5% estimated in May. Forecasts varied between -4.0% and 2.5%.

This forecast starkly contrasts with 6.3% gains predicted for Australian home prices in the same timeframe.

Henry Russell, an economist at ANZ, commented, “While near-term momentum suggests ongoing weakness in house prices, we expect a pickup in activity towards the end of the year and into 2025 as the benefits of low mortgage rates materialize.”

He added, “There are still significant headwinds such as rising unemployment and a weaker economy. However, the impact of lower interest rates on market confidence remains uncertain.”

Expectation is for average house prices to rise by 6.0% next year and 5.0% in 2026.
The RBNZ cut interest rates by 25 basis points in August and is expected to cut an additional 50 basis points this year and 125 more in 2025.

When asked about purchasing affordability for first-time home buyers in the coming year, six of eight analysts anticipated improvement, while two predicted worsening conditions.
Nick Tuffley, chief economist at ASB Bank, stated, “Affordability should improve significantly due to anticipated declines in interest rates, thereby reducing actual debt servicing costs for buyers.”

Tuffley highlighted a growing confidence among potential home buyers, suggesting this mood might positively influence the housing market in upcoming months.

($1 = 1.5969 New Zealand dollars)
(Reporting and polling by Devayani Sathyan; Editing by Hari Kishan and Louise Heavens)