So when people ask, “Are we at the bottom?” they usually mean: “Could house prices fall another 10 – 20% from where they are today?”

Here are the 5 reasons that looks unlikely.

#1 – The downturn was over 2 years ago. 

After peaking in November 2021 property prices fell for 18 months. They bottomed out in May 2023. That was over 2 years ago. 

So, the downturn lasted 18 months. And then the market has been pretty flat for the last 2 years. 

That tells me that the downturn is over. We’re in a new phase of the property cycle.

That doesn’t mean that house prices CAN’T start falling again. 

But it does tell us that the market has likely found its floor. And unless there’s new pressure (like interest rates jumping again), there’s no clear reason to expect a major drop from here.

#2 – Interest rates are down, making mortgages cheaper

The 1-year interest rate peaked at 7.4% at the start of 2024. Today, it’s closer to 4.9%.

So, in around a year and a half, the 1-year rate fell by 2.5%. That’s massive. 

If you have a $500k table mortgage, your repayment could have gone from $799 a week to $612 a week.

That saves $187 a week. That’s if you’re paying it off over 30 years. 

But some people who couldn’t afford a mortgage before now can. And it changes the economics for first home buyers.

Let’s say a first home buyers potential mortgage repayment has gone down $187 a week, but their rent stayed the same. Some buyers will decide that it’s time to buy their first home, adding to the increasing housing demand. 

More from Opes:

• What's happening with NZ house prices right now?
• I bought at the top of the market – now what?
• The fears that stop people investing – The market

#3 – Banks are loosening their purse strings and lending more

November 2021 wasn’t just the peak of the market. It was also the month that the updated CCCFA rules came in. 

Remember, that was the rule that said if you spent too much at Kmart or too much on coffee, you couldn’t get a mortgage.

That rule has now gone. And mortgage brokers report that the banks are more willing to lend. 

Part of this comes down to those falling interest rates. Lower rates mean the banks will also let people borrow more.

When you apply for a mortgage, you might pay a 5% interest rate. But the bank will stress test your mortgage application on (for example) a 7% interest rate.

That’s to make sure you could afford the mortgage even if interest rates went up. 

At the start of 2024, some banks tested borrowers' mortgage applications at 9.1%. Today, most are testing your application at 7%. 

So, if you could afford a $500k mortgage at the start of 2024. Today, you might be able to borrow $110k more. 

Lower interest rates not only mean that home buyers are more willing to borrow. It also means that the banks will let them take out those home loans. 

Again, this will mean that some people who wanted a house but couldn’t afford it before will now enter the market. 

#4 – House prices are now more affordable

The ratio of houses vs incomes is lower than it was pre-Covid.

Since January 2020, house prices are up 25%. But incomes are up 31%.

Don’t get me wrong, houses are still expensive. But you saw that house prices had the capacity to go up during Covid. You have a similar level of capacity today. At least when it comes to house prices vs incomes. 

That’s not to say there’s about to be a boom. I’m just trying to show how incomes have increased faster than house prices over the last 5 years.

#5 – Tax changes should lure more investors back into the market

The 2021 Labour government introduced tax changes that pushed investors out of the market. These included the interest deductibility rules and extended bright line test. 

But these rules have changed back. We’ve got the same settings we had back in 2017. 

So, some investors who have held off buying a house because of those changes could enter the market again. 

There’s no wave of investors yet. But combined with these other changes, it’s likely that investors will eventually re-enter the market, adding to housing demand. 

The 4 factors holding house prices back

That doesn’t mean everything is hunky dory. Or that house prices are set for a boom. 

Despite these 5 factors stimulating demand, there are 4 main factors holding house prices back. 

#1 The number of listings on the market

There are a lot of properties on the market for sale. In fact, we have the highest number of listings on the market in a decade.

It’s not as bad as in 2012. But we do have just over twice as many properties for sale compared to 2021, when house prices were going off.

That means buyers can take their time. They can be more choosy. 

It’ll take time for those listings to be picked up by this increase in buyers. 

#2 Kiwis are moving overseas

Some of that increase in supply comes from Kiwis moving overseas.

Over the last 12 months, around 150,000 people have moved to New Zealand. But, 125,000 Kiwis moved overseas.

That’s a net gain of 25,000 people over the last year. So the population is still increasing.

But the people moving here might not buy a house right away. While those moving overseas are people who might have otherwise stayed here and bought a house

Or they might already be homeowners who are selling.

One of my colleagues has gone overseas for a 12-month OE. Her partner is selling his house so that he can go off to Europe, too. Perhaps they’ll buy a house again when they come back. 

But, for now, they are adding to the housing supply without adding to housing demand. 

I’m not saying that’s a bad thing and that they should stay here. I’m showing how Kiwis who move overseas can add to the number of listings on the market. 

#3 DTIs are coming in and slowing some home buyers down

The next factor is on the demand side again. The Reserve Bank has introduced new DTI (debt-to-income) rules that limit how much you can borrow and tie it to your income. 

Home buyers can borrow up to 6x their income. While investors can borrow up to 7x their income. 

While the rules aren’t biting that much (yet) … I am seeing it slow down the odd buyer. This takes a few of them out of the market, decreasing housing demand (slightly) compared to what it would have otherwise been.

#4 The recovery is uneven

National house prices will take a while to lift. But in some areas house prices are already on the up. In other areas, they’re still down. 

For instance, since the bottom of each region’s market:

• Christchurch is up 7%+ 
• Invercargill house prices are up 15%+
• Auckland is only just beginning to see prices tick up again
• Same with Wellington

There is regional variation. Some areas will recover faster than others. 

That means that the overall housing market recovery might take a while to get going.

If you want to see what’s happening in your area, you can use the Market Mover calculator. 

You can play around with the data to see when the bottom of the market was in your area and how much house prices have changed since then. 

We built this to put the data in your hands. 

So, are we at the bottom of the market?

No. We are not at the bottom of the market. We’ve already passed it.

But what you really might be asking is when will you feel the recovery?

And the answer is after it’s already happened and you start to see headlines about house prices going up. 

Yes, there’s always uncertainty. But doubt is a good thing – you make much better decisions with doubt than you do with FOMO.

When you make a calculated decision based on data, you’re already ahead of most.

Most people just jump into investing when it feels good. When interest rates are low and everyone talking about the market again.

But investors get a real edge when they are ahead of that curve.