Is the party over? What’s in the future for NZ house prices?

Back in 2012 the median house price in New Zealand was $389,000 according to data from the Real Estate Institute of New Zealand (REINZ). Fast forward to today, and the median house price is more than double that - about $890,000.

But recently, those in the industry have started sounding alarm bells. After over a decade of consistent, and often rampant, price increases - the New Zealand property market is slowing down

A closer look at the New Zealand property market

Until very recently prices have continued to increase in New Zealand. In fact, in March the median house price in New Zealand increased by 0.6% with Auckland up 0.8%, REINZ data shows. 

Barfoot and Thompson were one of the first to report house price drops in their recent monthly market update. Their data showed that the average house price in Auckland was down 1.8% during April, and sales volumes had dropped 32% during the first three months of 2022.

Meanwhile, Tony Alexander’s regular survey of real estate agents painted a similar picture. A net 60% of agents surveyed noted  prices were declining in their area over April, up from 51% in March. 

Agents are also reporting fewer sales, fewer people at open homes, and auction clearance rates as low as 20%. 

Higher rates and stricter laws

The property market slowdown can be largely attributed to two things - increasing interest rates and new laws that make it harder to buy and hold property (for investors in particular). 

The RBNZ has signalled that the OCR will peak at 3.4% in 2024, which means that further increases to retail interest rates are expected.  

Meanwhile, the CCCFA rules have imposed onerous conditions on borrowers, interest deductibility is off the table for the secondary market, and the bright line tax has been extended to ten years. What’s more, inflation is likely to stick around for the medium term at least, meaning household budgets will remain tight in a challenging interest rate environment.

Putting the slowdown into context

House prices may be falling right now but will this trend continue? And if so how long will prices decrease for and by how much? Three of New Zealand’s largest lenders have provided rough forecasts:

• ANZ: 10% decrease during 2022. 

• Westpac: 15% decrease during 2022/23. 

• ASB: 6% decrease during 2022.

When factoring in that house prices increased by more than 27% nationwide in 2021, the above forecasted decreases will return house prices to mid-2021 levels. It’s therefore important to note that this  downward trend is less significant when looked at as part of a longer period of house price appreciation. Furthermore, with the OCR expected to peak in 2024, house price growth could return to positive territory within the next 2-4 years.

Most importantly, astute property developers that provide good product at the right price point, and have strong cost control mechanisms, will continue to make a profit over this period. Good market fundamentals remain in terms of supply and demand. With New Zealand re-opening to the world further pressure will come on the demand side offering more opportunity for developers. 

It’s also important to note that new builds are exempt from both the interest deductibility rules and the bright line changes, which will skew demand toward the new build  market. 

While property development is in for a challenging period, it’s still very achievable to make good profits, with a detailed plan and the right finance partners. Get in touch with Fortis Capital to discuss securing fast, flexible funding to ensure your development’s success.