How much do you think New Zealand house prices will rebound over the next year after bottoming out?

Economists at the major commercial banks currently share a broad consensus: New Zealand’s prolonged housing market downturn is largely over. Their conclusion is that house prices have reached, or are very close to, the bottom.

Following the outbreak of COVID, the Reserve Bank of New Zealand cut the Official Cash Rate (OCR) to a record low. With lower loan-to-value ratios (LVRs) also providing momentum, the national median house price surged from NZ$620,000 to a peak of NZ$925,000 in November 2021, an increase of as much as +50%.

However, buyers who have experienced two years of falling house prices and expect an immediate rebound after the steep decline may be disappointed. Experts predict New Zealanders are unlikely to see a strong housing market recovery in the short term.

BNZ Chief economist Mike Jones

BNZ chief economist Mike Jones believes house prices will “hover around the bottom for a while”, because “high mortgage rates, unaffordable house prices and a subdued economy will all hinder further price recovery”. Jones expects modest house price growth to resume in the second half of this year, with quarterly growth of 1–1.5%. The housing recovery will also be relatively slow in some regions.

Jones says that although the Reserve Bank has repeatedly stated that an OCR of 5.5% will be the peak for this cycle, many mortgage holders have yet to move from low fixed rates to higher rates, while first-home buyers face higher test rates. Data collected by the Reserve Bank of New Zealand shows that mainstream commercial banks currently apply test rates as high as 8.5–9% to new borrowers. Another fact that cannot be overlooked is that although house prices are considerably “cheaper” than at their peak in late 2021, they remain around 20% above pre-pandemic levels.

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Kiwibank chief economist Jarrod Kerr believes current market prices are “very close to the bottom”. He can already see some signs of recovery in the housing market, but the future direction of interest rates remains the biggest influence. He says, if the cash rate has indeed peaked, as the Reserve Bank of New Zealand says, then rate cuts are only a matter of time. How quickly, then, will mortgage rates fall? Kerr says frankly that this depends on a range of economic factors. He predicts that the Reserve Bank of New Zealand will begin cutting rates in February next year and gradually bring the OCR back to 2.5%.

Westpac senior economist Michael Gordon also believes house prices have bottomed out. In the bank’s latest economic report, Gordon writes that interest rates are nearing their peak and renewed migration is providing a fresh source of housing demand. He predicts that house prices will rise modestly from now on, and his team will continue to monitor their future direction.

ANZ economists are also confident that house prices have bottomed out, but this does not mean prices will stop falling in every region. Housing market performance varies considerably between regions. Wellington, for example, has performed particularly poorly: based on average house prices over the past 3 months, its annual change was -18.4%. Auckland’s performance has also been disappointing, with an annual change of -15.4%, although South Auckland fared better, recording a year-on-year change of just -5.1%. The economists point out that regional differences depend on local housing boom cycles and the pace of population growth. The current recovery in Auckland’s auction clearance rate clearly indicates that its housing market is regaining momentum. Surging net migration and fewer approved building consent applications mean New Zealand’s housing supply shortfall is widening.

ASB chief economist Nick Tuffley believes house prices “have reached, or are close to, the bottom”, and stresses that even if they have bottomed out, they remain 19% above early 2020 levels. His team forecasts a modest rise in house prices by the end of 2023, followed by an overall increase of around +7.5% in 2024, accelerating to +16% in 2025. The sharp increase in net migration is a key factor driving house prices higher.