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House prices are expected to remain flat throughout this year but are projected to rise by 7% in 2025, according to BNZ.
In a recent update, BNZ’s chief economist Mike Jones indicated that housing demand and market activity are set to increase as interest rates decline. However, the initial surge in demand is likely to absorb the current excess of houses on the market, preventing any immediate price hikes.
Data from the Real Estate Institute shows that the number of properties listed for sale in July was almost a third higher than the same time last year. Jones predicts a “modest upswing” in prices towards the end of the year.
Despite the potential for the labor market to weaken further over the next year, Jones believes that significant reductions in mortgage rates, coupled with improvements in other areas of the economy, will eventually provide a boost to the housing market.
Jones pointed out that anecdotal evidence suggests a rise in buyer inquiries and confidence, partly due to improved borrowing capacity and reduced fears of further interest rate increases.
He acknowledged that the forecasted shift from flat prices to 7% annual growth might appear abrupt but noted that it’s essentially a return to the long-term average growth rate of 6% to 7% per year. He clarified that this growth would not bring house prices back to the peaks seen nearly three years ago, but rather signal a slow recovery in a still subdued housing market.
Affordability has seen slight improvements in recent years as house prices have declined, household incomes have increased, and interest rates have started to fall. Jones explained that it typically takes around six months for changes in mortgage rates to influence house prices. BNZ expects floating home loan rates to drop to around 6% by mid-2025, down from the current 8%.
Jones added that the wholesale market has already anticipated an official cash rate of around 3% by the end of next year, meaning future declines in retail interest rates may not be as steep as those seen in the past month and a half. He noted that shorter-dated mortgage rates, such as floating rates and those fixed for up to 18 months, have more room to fall compared to longer-term mortgage rates.
He concluded that by mid-2025, two-year fixed mortgage rates could be closer to 5%, with five-year fixed rates slightly higher at around 5.4%. This would represent a return to a more “normal” mortgage rate curve, where longer-term rates are higher than shorter-term rates.
SOURCE: 1NEWS