The latest house price data for New Zealand shows that prices have started falling again after a brief rebound:
According to the REINZ House Price Index, values were tracking 16.0% below their peak as of May 2024:
Source: Tarric Brooker
The weakening in the data has prompted Westpac to downgrade its projections for New Zealand house price growth.
Westpac now forecasts 2.1% house price growth in 2024, down from the previous 5.8% forecast.
“Slow momentum in the housing market since the 2023 election combined with the RBNZ’s “tough love” message of keeping interest rates high for longer are the key drivers”, notes Westpac.
“The RBNZ’s stance has hardened in recent months reflecting the still uncomfortably high inflation outlook”.
“The RBNZ has indicated a longer period before lower interest rates become a realistic prospect”.
“We think this more pessimistic view has been reflected in the downturn of many economic growth and confidence indicators in recent months – the housing market included”, Westpac wrote.
However, Westpac believes that “house prices will benefit from lower interest rates in 2025 and ongoing housing shortages as construction remains weak and population growth continues”.
As a result, Westpac forecasts that prices will rise by 6% in 2025.
New Zealand has one of the most restrictive monetary policy settings in the world after recently overtaking Australia:
New Zealand mortgage rates will rise further as cheap pandemic fix rate terms expire and convert to higher rates:
These higher mortgage rates will act as a headwind for house prices until the Reserve Bank commences an easing cycle.
