First-timers may find themselves worrying about whether or not they have missed the property investment boat when it comes to today’s market.

Some may question: Has the market peaked? Am I too late to invest?

These concerns are exacerbated, and in some cases confirmed, by recent news articles. But look at the behaviour of past trends, or talk to people in the know, and you might hear another story.

So, what’s actually going on out there?

In this article, we’ll analyse the market to see whether house prices have peaked. You’ll also read a few predictions on how the market might fare in the future.

Has The Market Peaked?

So, Let’s Answer The Question Outright: Has The Market Peaked?

Yes and no.

It appears that house price growth has likely peaked for now, but house prices have not. What’s the difference?

Often when you read a newspaper headline, it’ll say “house market slowing”. You probably read that and think it means house prices are set to falls. That’s not the case.

If house prices were growing at 20% per year, and then started to grow at 10% per year, the market has technically slowed, but house prices are still rising at a quick clip.

It’s a bit like a car. If you are travelling at 150km/h you are speeding along and going to get where you are going fast.

But, if you decrease the speed to 110km, you’ve slowed the car, but you’re still getting to where you’re going, and you’re still travelling at a fair clip.

Applying this back to growth terms, we’re not likely to see the market growing at 21% year-on-year, but that doesn’t mean house prices aren’t increasing. The car hasn’t ground to a halt.

We hear you, the housing market has seen astonishing growth (of 21.5%) over the last 12 months.

House Price vs House Price Growth

Let’s Get Technical – What’s The Difference Between House Price Growth and House Prices?

It’s important to note the difference between the terms House Price and House Price Growth. When talking about the market it feels like they are interchangeable, but they aren’t.

House price growth peaking is not the same as house prices peaking. This is very important.

Here are two graphs. The left-hand side shows house price growth in New Zealand. The right-hand side shows what the house prices actually were.

Growth Peak vs Price Peak

This shows that in 2003 annual house price growth peaked at 24.13%: an enormous amount of growth in a single year. This was the peak of house price growth.

Now, if you had decided to not buy, because growth had peaked, you would have missed out on a 41% growth in property prices over the next 4-5 years.

That’s because the market was still appreciating, but at a slower rate. House prices themselves didn’t peak until 2007.

House price peaking v growth peaking
What Is Happening

If The Market Isn’t Peaking, What’s Actually Happening?

So let’s come back to today.

We’ve just seen a 38.90% increase in house prices between March 2020 and October 2021. What are we likely to see in the future?

Well, house price growth is likely at its current peak, but what’s likely to happen next? In aggregate, house prices are likely to continue increasing, but at a slower rate, as we’ve seen in the past.

Prediction v reality house prices

And, in fact, back in March 2021 we recorded this video of what we expected to happen in the market, and have been proved right.

In the video we predicted price increases for another 4 years, but it was going to increase at a decreasing rate. (Yes, we know that sounds contradictory. Bear with us).

Here’s our illustrative prediction compared with what actually happened:

Prediction v reality of house prices year on year

How does that compare to others making predictions in the market?

Well, the New Zealand Treasury released a forecast as part of its Fiscal update. In that report they expected house price growth to fall sharply, with growth crawling to a snail’s pace.

That hasn’t happened. Take a look at Treasury’s prediction vs what actually happened:

Treasury predictions

In fact, Treasury’s forecasts for house prices in 2025 have already been surpassed. In other words, house prices are currently higher than where Treasury thought they would be in 4 years’ time.

The Treasury’s May forecast said 2025 projected prices would see the national average house price climb to $933,322. According to CoreLogic, that figure rose to $950,229 in September.

So, it’s already exceeded that prediction by $16,907 – four years ahead of schedule.

Capital Gains

OK, So Are House Prices Going To Continue To Rise? Am I Still Going To Get Good Capital Gains.

A recent article by Stuff said “experts agreed” the market won't continue rising indefinitely, because factors driving the market have changed.

But these reports of the market declining, shortly after booms or surges, aren’t necessarily a cause for concern.

Here’s why.

The thing with house prices is, every time they hit a new high everyone says: “Surely they can’t go any higher. That’s got to be it now.”

But in reality what happens is the market steadies and everyone adjusts to the new expected price.

Sure, in times of economic crisis or otherwise, there can be a decline in house prices for a short time. But historically they have always regrouped after a period of stagnation or in some cases decline.

That being said, nothing in investment is a guarantee, which is why you make your own decisions based on how much risk you are willing to take.

Let’s explain in a bit more detail how the market fluctuates.

Market Decreases

How And When Can I Expect Some Decrease? Can It Be Predicted?

At some point, yes, you are going to see the market stagnate and decline. You need to be prepared for that. At some point, there is likely to be a small decline in house prices.

But, as a long term buy-and-hold investor, that shouldn’t be too much cause for concern. And it is certainly not an indicator that you should fire sale all your assets because this would mean crystallising your losses.

Houses will continue to grow over the long term as the price of materials rise, population growth continues, incomes grow, and general inflation rears its ugly head.

And, at some point, something will happen to make that kick-start another housing boom.

The thing you can do as an astute investor is to make sure you are in the cashflow position to hold these properties over the long term so you can weather any blips in the market.


Final thoughts …

Here’s one final example of where you have to be careful when either the Government or the media makes a grand announcement.

Earlier in 2021, the Reserve Bank announced a prediction that house prices would decline 5%. Scary stuff.

What it didn’t announce – but did squirrel away in the Excel spreadsheets – was that before the 5% decline, it predicted a 14% increase in house prices first.

Recent regulations and policies – DTIs, higher taxes, LVRs – have been designed to slow the market, and will have some effect.

But investors are likely to still see growth. Yes, it will be a bit slower than this last year, but it will still be growth.

Are we saying house prices will keep going up forever? Of course not. Eventually, there will be some decline.

But what we are saying is this “doom and gloom” story, that the boom is over, and it’s time for us investors to close up shop … well, it just simply isn’t true.

So is it too late and have you missed the boat in property? No. As the old saying goes: “Don’t wait to buy property. Buy property and wait.”

LM b W

Laine Moger

Laine Moger has been a journalist and reporter for the last 6 years. She previously worked for Stuff, The North Shore Times and Radio NZ. She has a Bachelor of Communications (Honours) from Massey University and a Diploma of Journalism from the London School of Journalism.