What will the housing market look like in November 2023? Three experts weigh in

New Zealand’s housing market looks quite different now to a year ago.

While prices were virtually at their peak in November 2021, they’ve since slipped just under 13%, according to Real Estate Institute data.

Interest rates have continued to rise, from an average one-year rate of 4.12% a year ago to 5.72% last month, according to the Reserve Bank.

And Reserve Bank Governor Adrian Orr was at pains this week to point out that things are going to get worse before they get better. He said the official cash rate was likely to need to peak at 5.5%, and the country would probably enter a year-long recession in the middle of next year.

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So what might house prices look like at this time next year? We asked three experts.

Tony Alexander, independent economist

Tony Alexander thinks the housing market’s fortunes may be turning by this time next year.

“I’d expect an improvement to be under way, in terms of house prices rising slightly, investors coming back into the market in anticipation of a change in Government and first-home buyers will probably be a bit stronger than they are now.

“I don’t buy into the scenario of it’s all going to be doom and gloom and it’s all going to fall away something horrible out there.”

He said the official cash rate (OCR) increase this week had already been largely priced in, so the focus was on what Orr said.

“It was all about trying to scare people and get talk about recession up and running.

“To me, the next key thing isn’t really interest rates going up, it’s when people can see the worst-case scenario. When we can say ‘it looks like interest rates are going to peak around whatever level, I can live with that even if I’m paying a lot for one year it looks like it’s coming down again from late 2023 or in 2024, I can live with that’. That will bring buyers back into the market. As each month goes by, the queue of buyers gets a bit longer, and a bit longer and a bit longer.

“I’m trying to get people to think about that not just the immediate worries the Reserve Bank is trying to engender out there.

“The OCR is going to 5.5% – but we’re going to get there in four months and one week, it’s relatively quick. Once we are there maybe that’s when people go ‘it’s as bad as it gets, it’s not pretty but there’s improvement down the track’.”

The rate of sales is likely to be slow next year, Kelvin Davidson says.

Kathryn George/Stuff

The rate of sales is likely to be slow next year, Kelvin Davidson says.

Kelvin Davidson, Corelogic property economist

Kelvin Davidson said this week’s update from the Reserve Bank had changed his view on what might be happening at the end of next year.

“For a while there I might have said sales activity would be starting to pick up, house prices – if not rising necessarily – at least not falling.”

He said that it was now more likely to be the case in 2024 rather than 2023.

“I’m aware of the risk there might be an element of the Reserve Bank talking a big game, trying to scare inflation down without having to deliver [the forecast rate hikes] – monetary policy works with a lag and there’s already been a big hit delivered, does it all hit everyone at once early next year so they don’t need to raise the OCR that far? There’s still a possibility we might see property sales pick up again at the end of next year and might see prices flatline. But we have a central scenario at the moment that 2023 will be another pretty quiet year for sales.”

He said it was likely there would be 67,000 or 68,000 residential property sales this year, the lowest number since 2010. It was likely the number would stay below 70,000 next year, too.

Prices were about halfway through their fall, he said. “It might take another nine or 10 months. I think it’s another year of more of the same. Next year could look the same as this year with low activity and prices down the whole year.”

He said one positive thing out of the Reserve Bank this week was that unemployment was due to rise in large part because of a growing labor force rather than job losses.

“That’s a less bad outcome for property in the sense that people aren’t losing jobs and can probably still pay their mortgages and move around if required… but I’m not sugar coating it, it’s definitely a serious property downturn and more to come , for sure.”

Miles Workman, ANZ senior economist

Miles Workman said ANZ was expecting a 27% peak-to-trough fall in house prices when adjusted for wage growth, or 18% in nominal terms.

“Fair to say, developments this week present fresh downside risk to this forecast.”

He said, now the Reserve Bank had shown how serious it was about getting inflation down, he would be watching for the potential “shock value” in the housing market.

“Housing often seems to get away from ‘the fundamentals’ in one direction or another as ‘animal spirits’ do their thing. In the upswing, animal spirits were categorized as FOMO. Perhaps now FOHIR (fear of higher interest rates) will manifest in a sharper downturn than we all expect. Importantly, this driver of housing outcomes is notoriously difficult to pin down in a forecast. That’s partly why economists don’t have a great track record at forecasting house prices.”

He said ANZ was previously expecting house prices to find a floor in mid 2023 but that could now come later due to the OCR probably lifting for longer than previously expected.

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