Buyers sceptical of Treasury's prediction house prices will fall

By Katie Todd for RNZ

Economists, real estate agents and property buyers are shrugging off a forecast of falling house prices.

In its pre-election update, Treasury predicted the average cost of a New Zealand home will dip 5 percent by June next year, before rebounding as immigration picks up and economic confidence recovers.

Reserve Bank bond buying has driven borrowing costs to record low levels and in Wellington, first-home buyer Grace says the market feels ultra-competitive.

"I've seen little two-bedroom cottages with south-facing living rooms going for over $800,000, so it feels pretty crazy. There's tons of people out there with babies on their front-packs and with their Mums and Dads, so it's definitely a pretty saturated first home buyer market, I think," she said.

Grace wasn't sure Treasury's predicted house-price plunge would pan out, and she was happy to put in an offer on a house now anyway.

"One you're in this realm of spending, 5 [percent]... it ends up not making much difference, I would think, especially when it's so cheap to borrow money," she said.

"I don't know if I would like, wait around to see if that happens, or not."

Michael Franks recently signed the dotted line on a house in Christchurch with his partner, and he said a short term drop in prices wasn't likely to stir up any buyer's regret.

"We're very happy we've bought now. It seemed really competitive when we were going through. It seemed like house prices were going up 15 percent above what they normally should have," he said.

"It wasn't really our intent to get into the market for personal gain - we were doing it for a step forward in our life. So any money we could have made I don't think would be worth it."

Since COVID-19 took its grip, house prices have repeatedly defied bank economist predictions of price drops.

ASB chief economist Nick Tuffley said the market had ridden an "adrenaline rush" of eased lending restrictions, falling mortgage rates, and fiscal stimulus.

While that could change as wage subsidy support fades away, he was dubious if it would be enough for a 5 percent drop.

"We're a bit mindful that unemployment is likely to rise as we're heading through into next year, and that could take the edge off it. But having said that, we think the market's going to hold up and be quite resilient, and it could be quite possible that we don't see a dip," he said.

The Real Estate Institute has just recorded its busiest August for sales volumes in five years, with record house prices seen across half the country.