Private property issue #59 – House price forecasts

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ANZ reckons we’re almost at the bottom of the market (earlier than expected).

And they’re not the only ones. 

The property market has fallen about 16% from the November ‘21 peak.

Earlier in the year, most forecasts said the property market could bottom out between July 23­ – June 24.

Today, the same commentators say it’s more likely to be June this year (or thereabouts).

“Housing market could bottom out in June” – ANZ

According to its latest summary, ANZ says that house price declines won’t be as big as previously expected.

Instead of a 22% decline from the market's peak, they now forecast that house prices will fall 18% in total.

“With prices already down around 16%, that means there is only around another 2% to go, with our forecasts assuming prices bottom out in June.”

ANAZ list 3 main factors that are contributing to a “stronger than expected” housing market:

• Surging net migration

• Steadying (and falling) mortgage interest rates

• LVR restrictions being loosened

What do the other banks think?

BNZ says the bottom of the market is coming but is not as optimistic as ANZ. They stand by their forecast that property prices will still fall another 4-5% (20% total decline).

In their most recent newsletter, they said –

“Our broader view is one where the correction is nearing its end, and we may see signs of stabilisation emerge over coming months.” – BNZ, Property Pulse March 2023

So a few months off, but we’re not that far away.

They’re picking the bottom of the market will come “mid-year”. And are waiting to see how higher interest rates and recent weather events work their way through the system.

“The housing market could bottom out in winter” – Tony Alexander

Tony Alexander joined Ed and me on the Property Academy Podcast earlier this week.

His three episodes start coming out on Monday, but I want to let you in on his house price predictions.

His best guess for the bottom of the market is “winter”. That’s somewhere between next month (June) and August.

He agrees, "No, we’re not there [at the bottom] yet”. Because:

• Investors haven’t returned to the market

• Buyers are still concerned about interest rates and the ability to get money from the bank.

But we’re not far off.

How long will it take the property market to recover?

Buying at the bottom of the market is all well and good. But what’s the opportunity?

Are house prices really going to increase that quickly after they bottom out?

According to Tony (in the yet-to-be-released podcast) … they’ll likely take about 3 years to get back to where they were in November 2021 (the peak of the market).

That 3 years is the same time the Treasury has suggested in their most recent forecast.

If that is correct, house prices will increase by about 22% over the next few years.

What would that mean for a potential investment property?

Let’s say you could time the market perfectly and purchase a $600,000 property.

In 3 years, it could be worth $731,707.

Almost a $132,000 gain.

Is that definitely going to happen? No. Forecasts are just forecasts.

There’s no guarantee that it’ll happen exactly like that. But –

• People are flocking to New Zealand. Net migration is through the roof

• Interest rates are softening, particularly the longer-term interest rates

• The labour market is tight, and people are feeling secure in their jobs

And as ANZ poetically puts it, the “animal spirits” of the housing market can get very wild.

Are we at the bottom? No.

But it’s near. And for some investors, there is an opportunity to be had.