A prominent economist has revealed what he thinks would have to happen for New Zealand’s receding property market to start heading in the upward direction.
Camerons Bagrie’s comments come as New Zealand faces falling house prices. Last week’s house price index from property research firm CoreLogic showed the country’s housing market decline had again accelerated, with property values now down nearly 9 percent on this time last year.
New Zealand’s average property value was $944,077 last month, down 1 percent from January.
Falling house prices have largely resulted from aggressive increases in the official cash rate (OCR), which is currently at 4.75 percent.
The decline has New Zealanders’ property price expectations plummeting to lows last seen during the Global Financial Crisis, according to ASB’s latest housing confidence survey.
In an interview with AM, Bagrie said one major thing would have to happen for this to turn around.
Bagrie said some commentary suggested the market was already starting to turn – but he disagreed.
“I don’t think we’re seeing that within the data at the moment – we are starting to see ‘days to sell’ looks like it’s peaking and when days to sell peaks, that’s normally an early sign that we are getting close to that base,” Bagrie said.
“But if you look at the effective mortgage rate at the moment… is around 4.3-4.4 percent. Interest rates have moved up but, if you look at where actual interest rates are at the moment when you go to re-fix, they’re up about 6.5 so there’s still a big wallop – a big economic impact – from rising interest rates to follow through the housing market in 2023.”
Bagrie said the property market turning would require investors to re-enter the industry.
“The investors are like that marginal buyer that will look at the numbers and if you look at residential investment at the moment… the residential investment yields are well below the cost of capital where interest rates are,” he said. “The investors are still pretty lukewarm in the market out there and, until they return, I don’t think the market’s going to base.”
Late last month, the Reserve Bank hiked the OCR by another 50 basis points. The central bank has now added 450 basis points to New Zealand’s baseline interest rate since October 2021.
ASB expects the OCR to peak at 5.25 percent.