Through the first half of this year house prices have fallen steadily and that trend looks likely to continue for now, as higher interest rates and weak sentiment combine with affordability being very stretched.
However, commentators expect prices to plateau before long – and are suggesting by mid-2023. One economist suggests things could be looking a lot brighter for New Zealanders in a year’s time. Many households are under pressure with high inflation and worries that we could enter a recession through the late half of this year.
But independent economist Tony Alexander said, if people could hold on for six to 12 months, things would start to look markedly better. Unusual world events have led to surges in prices, such as oil, should be worked through the system before too long, he said. By next year, while inflation would still be higher than recent years, households should be able to see signs of improvement.
We should see by mid next year that house prices have stopped falling on average, and long-time investors would already have made their “canny purchases”. Turnover will increase for real estate agents, and people who have moved due to lifestyle factors return to the market in “catch-up buying” mode.
Interest rates look to be near their peak. While we can’t rule out two-year interest rates increasing again after being cut by several banks this week, most of the longer-term interest rates are now about as high as they should go.
“At some point the Reserve Bank will go ‘I think we can take it a bit easier now, we’re seeing what we need to see’. I think will see that before the end of the year.”
Loan-to-value restrictions should also be loosened. The Reserve Bank has indicated that a 15% fall in house prices would take properties back to a level they no longer unsustainable.
People do tend to get overly despondent and can struggle to see a way out of things. But the factors that will herald the economy is in recovery are starting to appear now. It all looks bad at the moment, but that’s setting the scene for the Reserve Bank to cut interest rates.
Now is a good time to be looking at land and getting a new home build underway to pick up the market lift expected in about a year’s time. Timing in market is everything, these reduced land prices won’t last for long before we take off again.