It's hard to see any optimism in the property market with reports of new data showing double digit declines in the residential property market everywhere we look.
The Core Logic House Price Index decreased by 10.5 percent year on year in March 23. That followed a 9 percent retreat in February. Annual house price declines remained strong in the north, with double-digit downturns in Wellington (-20%), Auckland (-13.1%) and Tauranga (-10.6%). Solid price decreases were also recorded in Hamilton, down 8.4 percent in a year.
The median sale price has decreased nationally by 12.2% overall to $790,000 and decreased 7.9% for New Zealand excluding Auckland to $700,000 in 2022 according to the Dec 2023 REINZ Monthly Residential Report.
Interest rates have been increasing with the RBNZ trying to curb inflation brought on by government spending during the COVID pandemic to keep the economy afloat. On April 4 interest rates increased again 50 basis points raising the official cash rate to 5.25% increasing 11 x since Oct 2021 from a record low of 0.25%.
However it appears that the interest rate cycle has now reached its peak allowing the property markets to finally catch their breath. It is no secret that property prices commenced their decline in line with interest rate increases. NZ government bonds are now showing (5 April) a 30 basis point increase in 6 months time from the current 5.1%. What this means is that the market thinks interest rates have now peaked and are expected to go down from here but don't expect them to go back to where they were in 2021.
So what does this mean for NZ property prices in 2023?
Well importantly, the NZ economy remains fundamentally strong with unemployment at a very low level of 3.4% (Dec 22), interest rates are peaking in mid 2023 and there remains a large imbalance of residential properties for rent. This will mean rents will rise in 2023 and if it wasn't for the Healthy Homes standard being delayed until mid 2024 this would be far worse. There are just not enough houses for rent with developers pushing out plans for current housing development due to increasing interest rates and the difficulty of obtaining development finance. Rising rents will lead to increased prices towards the end of the year.
The Reserve Bank of NZ predicted that property prices would decline 11-15% from the peak in Nov 21 before recovering at the end of 2023 and prices had declined nationally by 12.2% at the end of 2022.
The team at The Property Room knows the best time to buy property is before it reaches the bottom of the cycle. This will be over the next 6 months. The fundamentals for property remain strong with vacancy rates low and tenant demand high for homes complying with the Healthy Homes standard due to come into effect mid next year.
If you would like to talk to our team about the current value of your property or where to buy, contact us here.
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