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New Zealand House Prices Stabilising: Increases Expected Soon

After holding the official cash rate (OCR) at 5.5 per cent last week, the Reserve Bank says house prices are now around sustainable levels.

By: Sally Lindsay

18 July 2023

The bank’s Monetary Policy Committee says house prices have stabilised in recent months and it noted the outlook for the market has become more balanced.

Higher net migration is supporting demand for housing, but higher interest rates continue to exert downward pressure on housing demand, it says.

While debt levels are high in some parts of the economy, and pockets of stress are emerging, early indicators point to only a moderate increase in stressed lending over the coming months and non-performing mortgage loans remain at very low levels.

The committee says lagged effects of previous monetary tightening are still passing through to households as they move off lower fixed rates.

Average mortgage rates on outstanding loans have increased from about 3 per cent in early 2022 to about 5 per cent. Based on existing commercial bank pricing, average mortgage rates are expected to reach about 6 per cent in early 2024.

Also contributing to a stabilised housing market is residential building, which has started to ease, and falling new dwelling consent numbers.

Gains forecast

Kiwibank is forecasting annual gains in the housing market of 2 per cent by the first quarter of next year, before hitting a high of 6 per cent by the middle of the year. 

The bank’s chief economist, Jarrod Kerr, says the true litmus test for the housing market will be made in the spring.

“Confidence in the market is better gauged over the warmer months. We expect interest rates to fall later this year, net migration is surging back, and there’s still a shortage of dwellings. We expect the housing market to bottom over the second half of this year, and we should see some slight gains next year.”

Westpac senior economist Satish Ranchhod says the latest REINZ figures confirm the bank’s previous view that the New Zealand housing market has found a base.

He says REINZ’s figures hint at the market heating up. “That follows the rise in net migration and population growth in recent months. This will be an important area to watch for the RBNZ.”

Next cycle will be muted

Meanwhile, CoreLogic says mortgage interest rates appear to be at a generalised peak, and this will allow households to quantify their ‘worst case’, with some starting to make property decisions again.

CoreLogic chief property economist Kelvin Davidson says the housing market downturn is almost over.

He says with net migration strong and employment still rising, at least for now, there’s also been early signs of an increase in property sales activity which will eat into stock availability and possibly eventuate into near-term price pressure.

But the next property cycle may remain muted by past standards. “With inflation still well above target, albeit slowing, the OCR may not be cut until later in 2024, leaving mortgage rates elevated for longer too, and keeping a fair degree of strain on housing affordability.

“Potential caps on debt-to-income ratios for mortgages (new and existing) from March/April next year are still hovering in the background.”


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