After some early year bluster following the coalition government’s late 2023 victory, this year’s housing market turned into a damp squib.

Numbers crunched by CoreLogic’s chief property economist Kelvin Davidson confirmed a 5% fall in national house prices, with Auckland and Wellington faring worst.

Economists who tipped prices to jump by up to 10% will hope we have short memories. In their defence, few could have predicted the magnitude of the retraction wrought by inflation, job losses, and high interest rates.

However, for most part, the worm has turned.

Interest rates continue to fall and inflation is within the magic 1-3% band for the first time since March 2021. On the flipside, job losses are expected to continue rising until the middle of next year.

2025 outlook

Despite lingering uncertainty concerning job security and international trade and economics, Davidson’s team has tipped house prices to rise by about 5% next year, with approximately 10% more homes being sold – around 90,000.

Lower mortgage rates and modest GDP growth will support rising property sales and values, according to Davidson. However, the current environment of stricter lending, per debt-to-income (DTI) ratio restrictions, will keep demand in check.

“DTI’s may limit how much borrowers can access, even if their cashflow improves with lower servicing costs,” Davidson said.

February cash rate cut

The Reserve Bank has indicated that the Official Cash Rate will likely be cut again in February. That’s good news for new borrowers. It will also have a rapid flow-on effect for the 10% of loans that are floating and another 40% that can be re-fixed within six months.

New housing supply

New dwelling consents appear to have bottomed out. The number of consents in October was 7% lower than the same month last year. A decline, for sure, but a much smaller one than seen in previous months. That bodes well for an uptick in construction volume over the coming year.

Migration

The year to July 2024 year saw two annual records for New Zealand citizens:

  • 81,000 migrant departures
  • A net migration loss of 55,800 New Zealand citizens

Overall, there was a provisional net migration gain of 67,200 people in the year to July, made up of 200,800 migrant arrivals and 133,600 migrant departures.

Westpac senior economist Michael Gordon said the cycle reflected a cooling economy and fewer job opportunities. “We’re forecasting annual net migration to slow to zero for the 2025 calendar year,” he said.

The relative slowdown could hinder the country’s economic growth, labour markets, and tax take. It could also dampen housing demand.

Consumer spending

Consumers aren’t showing much enthusiasm for splashing out. Spending in November was sluggish, with Stats NZ data showing next to no increase in spending compared to October, despite Black Friday and reduced interest rates. Spending in core retail industries increased by a meagre 0.1%.

Westpac senior economist Satish Ranchhod suggested higher fuel prices could have constrained spending. The only bright spot was in hospitality, where spending has risen 5% since August. In contrast, spending in other discretionary areas, such as household furnishings and apparel has remained soggy, despite widespread Black Friday sales events.

Debt-servicing costs are declining. More active buyers will likely push house price inflation back up to over 5% pa. Looking to sell? Call 0800 GOODWINS for an appraisal.