New Zealand Forecasted to See House Price Gains of 7% Despite Global Housing Correction

Date Published: 15 February 2024

Key Facts

• Global interest rate increases ended the 2020-22 house price boom, with less damage than expected.
• Capital Economics researcher Andrew Wishart has concluded that the housing correction has likely reached its end.
• Wishart forecasts price gains of 7% for New Zealand properties in this year and the next.
• Nominal house price drops have been moderate in most developed economies, with the largest decreases seen in New Zealand (15%), Canada (15%) and Germany (11%).
• The house price drop in 2022-23 was less severe than that during the Global Financial Crisis (GFC).
• Mortgage affordability has worsened across advanced economies due to rising average mortgage rates.
• Despite declining affordability, property buyers are accepting higher mortgage payments than usual.
• Affordability is less of an issue in markets like Italy, France, and Spain, while it remains a challenge in countries like Canada, the US, and Australia.

Article Summary

Rising interest rates worldwide have ended the 2020-22 house price boom, but property market damage has been less severe than anticipated, according to research by Capital Economics. Senior Property Economist Andrew Wishart reports that the housing market correction has likely reached its end, with a few exceptions. Amidst these market fluctuations, New Zealand’s housing market is expected to register price increases of around 7% in this and the next year.

The falls in nominal house prices have been generally small within most developed economies, with leading price drops noted in New Zealand, Canada, and Germany. Compared to the 2008 GFC, the house price decreases have been lesser, averaging a 5% drop from peak prices. This drop follows the house price boom between 2020 and 2022, which saw average price levels rise to 20% above their 2019 values, and over 40% higher in the US.

Despite the dips, rising mortgage rates leading to worsened affordability, remain an impediment across advanced economies. Yet, buyers appear to be accepting higher than usual mortgage payments, indicating the resilience of demand. Notwithstanding, affordability matters are less critical in markets like Italy, France, and Spain, while challenges remain high in markets such as the US, Canada, and Australia.

The most likely future scenario suggests modest price increases in nominal terms, with further drops in real house prices. This situation balances on two crucial factors: whether interest rates remain high, resulting in a possible rise in unemployment, and whether there are any substantial changes in supply conditions. These factors may affect market performance in 2024, particularly in Germany, Denmark, and Sweden, driven by high mortgage costs and a prominent rental market.

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