Four reasons why house prices are expected to rise throughout 2024

Housing Market Written by Tony Alexander, Jan 20 2024
Guest Post by Tony Alexander

Guest Post by Tony Alexander

REINZ have just released their first set of data on the residential real estate market this year and they tell us how things were going in the last month of 2023.

What we can see is that courtesy perhaps of the lagged effect of the election, some earlier rises in mortgage rates, and perhaps the previous few months getting ahead of themselves, average prices retreated by 1.1%.

This retreat means that the average monthly change in prices since the upward leg of the house price cycle started in June 2023 changes to 0.5% from the previous 0.8% before we got the December data.

This seems like a more reasonable gauge of what has been going on because the 0.8% monthly rise which works out at almost 10% for the year and it is hard to see that being achieved with many of the negative factors still in play over the second half of last year. A 6% annualised rate seems more in keeping with the fundamentals.

Looking ahead to what 2024 may bring I’ll come back to the key points made here a number of times since prices started rising and which I anticipate referring to repeatedly as we advance through the year.

The supply of new houses coming onto the market is falling

The number of consents issued around the country for new dwellings to be built has fallen to 38,000 from the peak of 51,000. But with recent numbers running over 30% down from the same months a year earlier it looks like we are headed toward 30,000 consents.

When we allow for demolition of existing houses to make way for new townhouses, and the fact that fewer consents progress to completions these days than in the past, we get a net addition to the country’s near 2 million housing stock which pales into insignificance beside the population growth.

The New Zealand population is growing

Courtesy of record net migration inflows our population grew 2.7% in the year to September. Housing those extra people requires roughly 50,000 extra dwellings – an increase in stock we are nowhere near achieving. But the pressures on housing are even greater than that.

The return of tourists and foreign students is seeing many properties go back to short-term rental from being placed in the long term pool when the pandemic came along in 2020.

Interest rates are expected to start falling in 2024

In addition, there is increasing demand for houses expected to arise as interest rates fall at a very uncertain pace throughout 2024 and then 2025.

Property investors returning to the market

On top of that we are going to see more investors entering the market as term deposit rates fall away, mortgage rates decline, and because the tax rules change to deliver 80% interest expense deductibility from April 1 this year.

When we put all of these factors together…

My expectation is that the 6% annualised pace of house price gains seen in the second half of 2023 may almost double once we get to the second half of this year.

There will be some restraint from rising unemployment and decreasing net migration gains. But with business sentiment and employment intentions improving, the unemployment rise will more reflect an increased supply of migrant labour rather than widespread redundancies of Kiwis even though some of these are occurring with more to come.

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