Date Published: Tuesday 9th January, 2024.
Table of Contents
Introduction
The Impact of Labour Policies on NZ Real Estate Market
National's New Law Passed: The Reserve Bank's Single MandateConsequences of Lowering Interest Rates
The Five Variables in the Real Estate Market
Predictions for the Future of NZ House Prices
Conclusion
In this article, we will cover a range of topics related to the direction of NZ house prices in 2024. We will provide valuable insights and advice to help you navigate the current market and make informed decisions. Whether you are considering selling your property or simply want to stay informed about the New Zealand and Christchurch Real Estate Market, this article is designed to provide you with the information you need.
Labour's actions during the pandemic had a significant impact on the real estate market. When the pandemic hit, the government closed doors and shut down the economy. While this made sense initially, the prolonged closure resulted in inflation; demand surged after the restrictions were lifted, resulting in prices skyrocketing.
Inflation was also fuelled by the government's decision to print money and lower interest rates. When money is printed excessively, it devalues the currency and leads to higher prices for goods and services. Additionally, lowering interest rates made it easier for people to borrow money and invest in real estate, further driving up prices. Looking ahead, it is important to consider the role of National’s new laws.
National recently passed its first law, returning the Reserve Bank of New Zealand to having a sole focus on inflation. This means that their primary goal is to control inflation and ensure that prices return to normality. By doing so, they aim to create a more balanced and sustainable economy.
One of the key tools the Reserve Bank uses to control inflation is interest rates. When inflation is high, the Reserve Bank may increase interest rates to bring inflation down. On the other hand, when inflation is low, the Reserve Bank may lower interest rates to encourage borrowing and spending, which can stimulate economic growth. Understanding the actions of the Reserve Bank and its focus on inflation is crucial for individuals, especially those in the real estate market.
By staying informed about the Reserve Bank's decisions regarding interest rates and monitoring inflation rates, individuals can make more informed decisions about buying or selling property. We encourage you to watch the video in this article that explains inflation and discusses The Phillips Curve, which represents the relationship between the rate of inflation and the unemployment rate.
Interest rates play a crucial role in the real estate market. They have a direct impact on market activity and can greatly influence the overall state of the market. Here are a few key points to consider. When interest rates are low, borrowing money becomes more affordable, and this often leads to increased demand in the real estate market. Buyers are more likely to take advantage of low rates to purchase properties, which can drive up prices and create a bustling market as we saw in 2021 and 2022.
On the other hand, when interest rates are high, borrowing money becomes more expensive, which can slow down market activity. Higher rates can deter potential buyers from entering the market or upgrading their homes, as it may not be financially feasible for them to do so. As a result, the market may experience a decrease in demand and a decrease in property prices. This is what we've started to see in recent years.
To understand the current state of NZ house prices and make accurate predictions for the future, it is important to consider the five key variables that influence the real estate market. When you have time, we encourage you to read this article here about the five variables: https://www.najibrealestate.co.nz/Social/Najib-Blog/Five-Economic-Variables-Which-Affect-the-NZ-Real-Estate-Economy/
The Unhealthy Increase in Average Sale Price in New Zealand
One of the concerning trends in the NZ housing market was the significant increase in average sale prices. Over the past four to five years, prices have surged by up to 55% in Christchurch, far exceeding a healthy annual increase of 2% to 4%. This rapid increase in prices has made housing less affordable for many households.
Analysis of the Current State of Demand and Supply
Currently, the real estate market is experiencing a slowdown in demand. This can be attributed to factors such as the tightening of lending criteria and increased interest rates. At the same time, supply has been increasing, with more properties coming onto the market. This shift in the balance between demand and supply may lead to price stabilisation and a decrease in prices.
Importance of Affordability for Households
A healthy affordability range is typically around 3 to 4 times the household income. However, in recent years, affordability has been stretched, with some households needing to spend 6 or more times their income to purchase a home. This lack of affordability puts financial strain on households and can have long-term consequences for the overall economy.
The current state of the real estate market in New Zealand has raised questions and concerns about the future of house prices.
The Projected Drop in Property Prices and Its Impact on Homeowners
It is important to acknowledge that a projected drop in property prices is not based on speculation or guesswork. Rather, it is a result of careful research and analysis of key variables discussed in this article. Based on these factors, we estimate property prices to drop by 15 to 20% into mid-2024. While this may be concerning for homeowners, it is important to remember that property prices tend to rebound over the long term.
The Importance of Timing
When it comes to selling a property, especially in a market that is experiencing a potential drop in prices, homeowners can capitalise on the current market conditions and avoid the risk of further depreciation. Renting may be a viable option until the market stabilises and prices begin to rise again.
If you are considering selling your property, it may be wise to do this sooner rather than later. By selling now, homeowners can avoid potentially larger losses in the future. We understand that these predictions may cause concern and uncertainty but if we can prepare you for what's to come, it will allow you to plan ahead and make informed property decisions.
If you would like to discuss the real estate market, please contact us here.
Exclusive Homeseller Offer for Christchurch and Selwyn Residents (Ends Feb 29, 2024).