PHOTO: Tony Alexander. FILE
Treasury warn that house prices might fall 7% from their current levels. But chances are they are much too pessimistic and the recent rise in prices will continue, though at a slightly slower pace because there will be some bounce-back effect in price gains these past three months. Average NZ house prices now sit 1.5% above levels in March.
Here are 25 reasons why house prices have surprised us with their strength. Many (not all) of these factors will continue to apply over the coming year and beyond.
1. Interest rates
The Reserve Bank cut the official cash rate 0.75% in March and since then floating mortgage rates have fallen to near 4.5% from 5.3%. The two-year fixed
rate has fallen to 2.65% from 3.55%. Term deposit rates have also fallen, with the six-month rate going to 1.3% from 2.3%. Lower interest rates have made purchasing a home more affordable, and encouraged investors seeking higher yield than now offered in bank term deposits to look at other assets including property.
2. Interest rate expectations
It is not just that interest rates are low. The Reserve Bank have made it clear that they intend to keep rates low for many years, with assistance from the
US Federal Reserve which has just shifted their policy stance toward multiple years of low rates to try and generate inflation above 2% for a number of years. Also, our central bank has indicated it may introduce a negative official cash rate next year. Expectations that interest rates will stay low are encouraging people to expect that other people in the future will be seeking higher yielding assets including property. So, they are buying before this expected extra demand comes along.
READ THE FULL REPORT HERE: TV 17 September 2020
