Private Property issue #148 - House price predictions 2025

"How much will house prices go up in 2025?" – It’s (literally) the million-dollar question for many homeowners.

Each month, I track what the big bank economists think will happen.

Right now, their median forecast says house prices will rise 6.8% throughout the year.

But each bank has a different view.

ASB thinks house prices will grow 9.4%. ANZ says 6%.

The Reserve Bank is more conservative. They reckon 3.8%. That’s a lower forecast than what they thought just 3 months ago.

Can you believe any of the forecasts from bank economists?

The future feels more unpredictable than it ever has.

Trump’s snuggling up to Russia.

China’s got its eyes on Taiwan.

The US is launching tariffs on its allies. Canada and Mexico are biting back

So economist’s forecasts have a wide margin of error.

So, let’s go through the arguments that these bank economists are too optimistic.

Then, let’s turn the tables. And look at the arguments for why there could be some decent house price increases this year.

Reasons house prices won’t go up much

#1 - Unemployment is high.

We’re sitting at 5.1%. Most economists think we’ll get to 5.3% unemployment. How can people bid up the price of houses if they lose their jobs?

#2 - Net migration is falling.

At its peak, net migration added 135,000 people to our population in a year. Now, we’re sitting at 27,000-ish.

Migration is still adding to the population. But at a much slower rate. And there are a lot of Kiwis moving overseas.

#3 - There are lots of properties on the market.

Property listings are the highest they’ve been in the last 9-10 years. Lots of supply to soak up any extra demand.

None of this screams “boom time” to me.

That’s why I look at ASB's prediction of 9.4% growth, and I think they're off their head.

Reasons house prices could go up

But there are two sides to this story.

#1 - We’re at the bottom of the market. 

Property prices tend to move in cycles. We’ve had a boom. We’ve had a downturn. Typically, this is when property prices start to recover.

At some point, we’ll likely move back to a more normal level of house price growth.

#2 - Interest rates are falling.

A year ago, the 1-year interest rate was around 7.2%. Today it is 5.2%. That means people can afford to borrow and spend more on a house.

#3 - Banks are losing their lending rules.

12 months ago, the bank would see if you could afford your mortgage at around 9%. That’s called the servicing test rate.

Today, they’re testing your mortgage at 7 – 7.5%.

A first-home buyer who could afford a $500k mortgage in 2024 might be able to take out a $585k mortgage this year.

That’s if we just look at the income tests.

The government has also loosened the CCCFA. That was the law that stopped you from getting a mortgage if you spent too much on coffee, Uber Eats or Netflix.

That’s another reason why banks are loosening the purse strings.

OK, what’s the verdict – what will happen to house prices?

I reckon you’ll see a decent increase in house prices in 2025. Probably not the 9%. But somewhere closer to 6% seems right to me.

Just don’t fall into the trap of thinking: “House prices didn’t go up much last year, so they won’t go up this year.”

This graph shows how much house prices jump around year to year.

There are times when house prices go up 4% one year and go down 9% the next year.

Or property prices falling 14% one year and going up 2% the next year.

Or even going up 20% one year and falling 14% the next.

But the amount of growth you see depends on where you live.

If you’re in Wellington, you might think:

“The economy's pretty crap. Businesses are closing. Ain’t no way we’re getting a bounce back here in 2025.”

But, if you live in Queenstown, you probably think: “House prices are already going up. It’ll be more than 6% here.”