Private property issue #43 - bottom of the market?

The property market was a sh*t show in 2022.

Will the 2023 property market be a sh*t show too?

Probably not.

Banks and government think house prices will bottom out in 2023 … and start to recover in 2024.

When will the bottom of the market come?

Many banks predict that prices will bottom out in mid-late 2023. This includes Kiwibank, ANZ, and the Treasury.

Here are the predictions:

All but two names on this list reckon the market will bottom out in 2023.

Kiwibank, independent economist Tony Alexander, and Opes Partners (that’s us) predict the market will bottom out between June and September 2023.

Treasury and ANZ reckon we’ll see the market’s bottom between October - December 2023.

The Reserve Bank and Westpac are more pessimistic. The Reserve Bank thinks the bottom will hit in a year. Westpac says we’ll have to wait until April-June 2024.

How much more will property prices drop?

Property prices are down 13.7% since their peak. We can all agree on that

But, all the banks have a different view on how far property prices still have to fall.

Kiwibank says another 6.7% at the lower end, and the Reserve Bank says 7.4%.

Treasury’s data suggests another 9.8%.

The two large banks are the most pessimistic. ANZ and Westpac see house prices falling another 10% from current figures.

But you need to know (and this is very important) … These price drops are not 6-10% from today (January 2023).

They are 6-10% from the last data release. For some of these forecasts, that was November last year.

Data is backward looking. So, house prices would have already fallen a bit since these forecasts came out.

How quickly will house prices recover?

After the market has bottomed out… how long do we have to wait until prices recover?

• Treasury has the most aggressive prediction. A 24% increase in the 3 years after the dip

• The Reserve Bank predicts a more modest 8.9% gain in the 2 years after the dip

• Westpac is the most conservative. Just an 8.9% increase in the 3 years after the bottom.

Treasury’s predictions are the most interesting. Their forecasts show house prices back above their peak levels by 2027.

In fact, they think house prices will increase 10% in the 12 months between Sept ‘24 to ‘25.

If this prediction is correct (it probably won’t be), house prices will have taken 5.5 years to go from the peak through the downturn to full recovery.

This is similar to the 2008 housing market downturn.

When should I invest?

It is impossible to time the market perfectly.

Depending on who you ask, the bottom of the market could come as soon as June this year. Or it could hit as late as June ‘24.

That’s a 12-month window.

But, while it’s impossible to put a pin on the exact bottom, you can invest within “cooey” of it.

The key message is: There are signs that house prices will bottom out this year. This creates three key opportunities:

• Buying a house cheaper than you could at the same time last year
• Buying near the bottom of the market (with the potential for prices to increase in the following years)
• Have more choices in the properties you buy (since more are for sale).

But there are risks too:

• Rising interest rates hurting property investor’s cashflows
• The risk of overpaying for property in a falling market.

And throughout 2023, this newsletter will continue to guide you so you can take advantage of the opportunities … and manage the risks.