The New Zealand housing market has been a subject of significant interest and concern in recent years. The COVID-19 pandemic brought about unprecedented fluctuations, making it particularly volatile compared to other countries. In this blog post, we’ll delve into the recent report by HSBC Bank, which sheds light on the current state of the housing market and the factors contributing to its trajectory. Furthermore, we’ll explore the insights provided by economists and researchers to gain a comprehensive understanding of the housing market’s future prospects.
The Housing Market Rollercoaster
According to HSBC Bank, New Zealand’s housing market saw a remarkable surge, with home prices soaring by over 45% between the end of 2019 and 2021. Such a rapid increase in property values led to the implementation of monetary and fiscal support measures to stabilize the market. However, the scenario took an abrupt turn due to the central bank’s decision to raise interest rates to curb inflation. Between October 2021 and mid-2023, benchmark interest rates climbed to 5.5%, resulting in a steep 18% decline in national house prices. Auckland and Wellington experienced even more significant drops.
Resilience Amidst Challenges
Despite the substantial correction, it’s worth noting that the current property values remain approximately 25% higher than pre-pandemic levels. HSBC Bank highlighted the housing market’s resilience in the face of challenges, citing Australia’s experience, where population growth counteracted the impact of interest rate hikes. Economists, including Dr. Jamie Culling, believe New Zealand may follow a similar trend. Recent data from some regions indicated minor price increases, bolstering optimism for stability.
Factors Driving Market Recovery
A crucial factor expected to support housing demand is the influx of immigrants. Driven by this population growth, rental prices surged by 3.9% in June 2023 compared to the same period the previous year. However, the limited housing supply poses a challenge. In response, the central bank relaxed loan-to-value ratio restrictions, further influencing the market dynamics. These factors led to HSBC Bank revising their predictions for 2023 and 2024 housing price trends.
Revised Housing Market Predictions
HSBC Bank adjusted their outlook, anticipating a 2.3% decline in house prices in Q4 2023 compared to the same period the previous year (previously projected to be an 8% decline). Moreover, they predicted a 5% increase in house prices in Q4 2024 compared to the same period the previous year (previously projected to be a 1% increase). However, it is crucial to highlight that the bank warned about the sustainability of the current price levels, suggesting that they are far from being considered “affordable.”
The New Zealand housing market has experienced significant ups and downs, influenced by various factors ranging from the pandemic’s initial volatility to the central bank’s inflation-controlling measures. HSBC Bank’s revised predictions indicate cautious optimism for the future, with population growth and relaxed loan-to-value ratio restrictions contributing to potential market recovery. However, concerns persist regarding housing affordability and the need for sustainable solutions to ensure a stable and inclusive property market for all. As the market continues to evolve, policymakers and stakeholders must collaborate to address these challenges and foster a thriving housing sector in New Zealand.