This article based on information and technical knowledge from Head of Mortgage broker at Global Finance, Aseem Agarwal, explores the economic changes shaping the immediate future of New Zealand’s property market.

1: The inverse relationship between property prices and interest rates

In January 2023, interest rates peaked at 6.69% for 5-year fixed mortgages. This surge in interest rates coincided with a decline in property prices.

“When interest rates decrease, borrowing becomes cheaper and demand for mortgages and properties increases, driving prices up. Conversely, when interest rates rise, borrowing becomes more expensive, which reduces the demand for mortgages and properties,” says Aseem.

Looking ahead to 2024 (and beyond), the projected trajectory of interest rates helps us make informed housing market predictions and will impact homeowners and investors.

2: What will interest rates look like long term?

Interest rates are always closely linked to inflation. Currently, inflation is sitting at 6% – 3% higher than the Reserve Bank’s target band of 1-3%. The Reserve Bank increased the official cash rate (OCR) to bring inflation down, making borrowing more expensive. This helps take money out of the economy and reduces the potential for further price rises.

Fortunately, the OCR moderation has begun to work its magic, and inflation is starting to drop. The Reserve Bank now forecasts a gradual decline in interest rates in the latter half of 2024. This will likely stimulate housing market demand and push prices up.

“Interest rates should be stable over the next 12-15 months and then start to drop,” says Aseem.

3: The impact of political change

With the elections in October, a new government could mean some changes in property rules and regulations. One significant area that might be affected is the ever-controversial interest deductibility on investment properties or the ability to deduct interest on your mortgages from taxable income.

This deduction has long been a subject of debate in New Zealand, says Aseem.

“We can assume that any changes to this policy will impact the property market. If the new government decides to resume interest deductibility, we might see investors come flooding back into the market, pushing prices up.”

4: Immigration and first-time homebuyers

Over the past seven months, New Zealand has witnessed an unparalleled influx of immigrants, with a staggering 105,000 people choosing to call this country home. As Aseem points out, the new demographic will significantly impact the property market in the coming years.

“The new population will become eligible as first-home buyers over the next four years, pushing up demand and prices.”

Will property prices rise? It looks promising.

Despite the drop in house prices, there are positive signs that the property market will see an uptick starting at the end of the year. The gradual decline in interest rates could stimulate demand and lead to higher property prices . Moreover, the impact of political changes, especially concerning interest deductibility on investment properties, may attract investors back into the market, also pushing prices upward. Finally, the recent influx of immigrants will create a new demographic of first homebuyers.

However, as with any market, uncertainties persist, and it’s important to make informed decisions based on evolving market conditions. If you’re keen to make strategic investment plans, our experts at Global Finance can sit with you to explore the promising outlook for property prices.

The information and articles published are true to the best of the mortgagereviews.co.nz knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold mortgagereviews.co.nz or its employees liable.