Why are house prices on the rise in New Zealand?

The rise in house prices in New Zealand has been against all expectations. Four indicators tend to have the biggest impact on house prices:

Lower interest rates seem to be the main reason for the major increase in prices but there is fear amongst consumers if they don’t purchase a property now they will miss out on the market as prices start to escalate. With interest rates being predicted to remain low for till at least the end of next year it is likely that house prices will remain elevated with no major correction. However as with most housing markets there will become a time when over-zealous investors push prices to non-sustainable levels. If house price to income and rent ratios blow out then owning a house will simply become an untenable option for a greater proportion of the population. Ultimately, prices will then have to move. Below is a useful graph showing house prices in New Zealand since 1963 – generally on the up for the vast majority of the period.

Source: RESEARCH ECONOMY WATCH – BNZ 15th October 2020

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