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    Due to inflation, higher mortgage rates, tougher lending rules and increased housing supply, house prices in New Zealand are falling. The question many are asking is how far will they fall and when will the decline stop?

    A bit of house price history

    Before we get to the numbers though, we’re going to preface our predictions by saying that in May 2022, house prices fell back to the same levels they were at in November 2021, but we were still seeing an average annual increase of 10.5 per cent.

    Let’s put that in context a little bit. Since December 2003, almost 20 years ago, the average property value has risen from $263,562 to $1,027,121 across the country. That is an increase of $763,559, or 290 per cent: an annual average increase per year of around 7.5 per cent.

    What we are seeing is a cooling real estate market in New Zealand; some economists have called it a reset. They believe we are into a corrective phase for housing.

    We don’t believe we are seeing a catastrophic market, so if you’re in your own home, just ride it out.

    How low will they go and until when?

    We forecast a drop in house prices of between 10 to 15 per cent over the next 18 months, which would bring prices back to what they were around mid-2020. This decline is not going to be same country wide as each region or city will have a different rate of decline.

    Like many economists, we expect that the official cash rate (OCR), which determines mortgage interest rates, will be further raised in an effort to battle inflationary pressures and the disruptions caused by the Ukraine conflict and continuing supply chain issues.

    The resulting hikes in mortgage interest rates will cool the housing market and we don’t expect to see any significant value growth until 2024.

    Supply and demand

    After a couple of years of incredibly fast house price increases across the country – the median price was up more than 30% in the year to June 2021 – demand for houses is lessening. The general forecast is that house prices will fall further, but they will remain higher than they were pre-pandemic.

    Mortgage rate increases over the past 12 months and high inflation have reduced demand from prospective buyers. Consequently, house sales have dropped, but the number of homes for sale has risen. Sellers may therefore need to lower their price expectations if they want to find buyers.

    More properties available for sale means the FOMO element, or fear of missing out, is going and buyers are now going to be in a better position to negotiate with sellers on the price they are willing to pay.

    So, should you buy a house now or wait?

    Should you jump in now and buy, or wait to see if more bargains appear? You can only answer this by having a good understanding of the property values in the area you want to buy, while being careful about how much you stretch yourself, given that rising mortgage rates will rise over the next couple of years.

    You also need to appreciate that buying now means there is less scope for capital gains over the short term, but if you’re buying a family home, that may not be such an issue for you.

    You also need to be able to negotiate well to secure such a ‘bargain’ and have the money available to seal the deal.

    These are all points we can help you with at Global Finance.

    Making a financial plan

    With FOMO disappearing from the market, you can take a little more time with your decision-making and our financial advisors can work with you to get a financial plan in place so you can buy that ‘bargain’ after having researched it and ensuring you are in a good financial place to be covered over the next couple of years of rising interest rates.

    Take advantage of the help, support, expertise, and advice on offer from our financial advisers. Before taking out a mortgage, talk through your mortgage options with us. We’re here to help.

    **These are general guidelines and are by no means a reflection of bank or lending policies