A recently published report by BNZ, has presented a brighter outlook for real estate values.

According to Mike Jones, BNZ Chief Economist, the bank's long-held view regarding the house price correction is materialising as anticipated. The confidence in this view has grown to the extent that BNZ now considers the correction to be nearing completion, with prices reaching levels approximately 16% below the peak.

“We now see house price growth resuming over the second half of this year. But only at modest rates of around 1-1½% per quarter. That is, we remain of the view that still-high mortgage rates, stretched affordability, and sluggish economic conditions will all constrain the extent of the upturn. We see annual house price inflation at -2% by the end of this year (from -12% currently), rising to +7% over calendar 2024.

“It’s worth reiterating the usual health warnings around any house price forecast. We see large risks on both sides of our view, but reckon they’re roughly evenly distributed either side of our updated projections.”

Extra population will add to housing demand

If mortgage rate dynamics have played out loosely as expected, population dynamics have not. “The extraordinary boom in inward migration numbers is turning out to be a game-changing development for the economy, and it certainly has implications for the housing market,” Mike Jones said.

“The surge in residential construction of recent years had, in combination with closed borders, restored balance to a market that, pre-COVID, was probably undersupplied to the tune of 50-100k dwellings.

“Now, with population growth surging again and construction activity slowing, we’re, conceivably, in the process of moving back into a position of excess demand for housing. Our rough projections have incremental demand nudging above incremental supply over 2024.”

Considering the recent report from BNZ highlighting improving prospects for real estate values, Keith Niederer, Network Manager, NZ Raine & Horne agrees the house price correction is nearer the end than the beginning. “There are still economic hurdles to scale for the real estate market, however, population growth, coupled with tardy construction activity, may lead to a shift towards excess demand for housing in the medium term.

“As with any housing market forecast, there are risks involved, but these projections indicate a potential resumption of house price growth at modest rates in the second half of this year, the start of 2024.”

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