New Zealand Real Estate Market: 2024 Trends and 2025 Outlook

BNZ predicts flat house prices in 2024, with a 7% increase expected by 2025. Discover insights into the New Zealand real estate market.

In a recent update, the Bank of New Zealand (BNZ) has provided insights into the housing market, predicting that house prices are likely to remain flat throughout 2023 but are expected to see a 7% increase by 2025. This forecast comes amid a backdrop of fluctuating interest rates and changing economic conditions that are influencing buyer behavior and market dynamics.

Current Market Conditions

The BNZ's analysis indicates that while house prices may not experience significant changes in the immediate future, there is an anticipated increase in demand and housing activity as interest rates begin to decline. Initially, this surge in demand is expected to absorb the increased inventory of homes for sale, which has seen a notable rise. According to data from the Real Estate Institute, the number of properties listed for sale in July was nearly a third higher than the same month last year. This influx of listings suggests a market that is adjusting to previous price declines and preparing for a potential recovery.

Future Price Trends

As we approach the end of 2023, BNZ economists predict a ‘modest upswing’ in house prices. This optimism is tempered by the expectation that the labor market may continue to face challenges for another year. However, the anticipated drop in mortgage rates is likely to provide a much-needed boost to the housing market, coinciding with an overall improvement in economic activity.

Anecdotal evidence supports this outlook, with reports indicating a rise in inquiries from prospective buyers and a growing sense of confidence in the market. This renewed interest is partly attributed to improved borrowing capacity estimates, allowing potential buyers to feel more secure in their purchasing decisions. Many are also relieved to see that previous concerns about rising interest rates may be subsiding.

Understanding the Shift in Market Dynamics

The transition from flat house prices to a projected 7% annual growth may seem abrupt at first glance. However, BNZ economists clarify that this shift is not as drastic as it appears. After nearly two years of stagnant prices, the market is simply returning to its historical average growth rate, which typically hovers around 6% to 7% annually. 

Moreover, the recent improvements in affordability—stemming from falling prices, rising household incomes, and decreasing interest rates—are expected to play a significant role in revitalizing the housing market. Typically, it takes about six months for changes in mortgage rates to influence house prices, suggesting that the effects of the current economic adjustments will soon become evident.

Interest Rate Projections

BNZ forecasts that floating home loan rates could stabilize around 6% by mid-2024, a significant drop from the current average of approximately 8%. This projection is based on expectations that the wholesale market has already accounted for an official cash rate of about 3% by the end of next year. Consequently, it is reasonable to assume that the decline in retail interest rates may not be as swift as the reductions observed over the past month and a half.

Shorter-term mortgage rates, particularly those with terms extending up to 18 months, are likely to experience more significant decreases compared to longer-term rates. This is due to their inherent nature of incorporating less of the anticipated easing cycle. These factors are crucial in shaping BNZ's broader interest rate outlook.

The Mortgage Curve and Future Implications

If BNZ's predictions hold true, the housing market could see a steepening of the mortgage curve, with two-year fixed mortgage rates approaching 5% by mid-2025 and five-year fixed rates slightly higher at around 5.4%. This scenario would mark a return to a more traditional upward-sloping curve, where longer-term rates are positioned above shorter-term rates.

The BNZ's latest insights into the housing market suggest a period of stabilization in house prices for 2023, with a promising outlook for growth in the coming years. As interest rates decline and economic conditions improve, the housing market is poised for a recovery that could see prices rise by 7% annually by 2025. While challenges remain, particularly in the labor market, the overall sentiment among prospective buyers is shifting positively. With improved affordability and a more favorable borrowing environment, the housing market may soon return to its historical growth patterns, benefiting both buyers and sellers alike.