Where the New Zealand Property Market Is At: Straight Talk

Property’s always a hot topic, and for good reason. Ever since the ’87 stock market crash, it’s been the ‘drug of choice’ – not just for everyday investors, but for banks. At an economic level, the credit creation that occurs through the property segment is [sadly] what underpins a lot of economic activity in NZ. Property ownership, or investment, is the original ‘short the dollar to acquire scarce assets’ strategy, and whether you’re in the game or just watching from the sidelines, for almost 40 years it’s been about ‘number go up’. For the everyday homeowner, it’s about lifestyle, and investment.  The awkward question is, has it all come to an end? Here’s a no-nonsense look at what’s really going on.

What Drives Property Prices?

First, let’s be honest about what moves the needle for property buyers. Property prices in New Zealand have always boiled down to two things: lifestyle and the money side of things.

  • Lifestyle: Where do you want to raise your kids? What kind of community do you want to be part of? These questions matter, and for a lot of people, they’re the main reason to buy.

  • Financial Considerations: Can you actually afford the mortgage? Are you prepared for the ups and downs? This is where most people start sweating, but where most wealth is grown.

Zooming out, let’s not forget the big picture: government, and monetary policy have been pulling the strings for decades. Since the 1987 share market crash, banks in New Zealand overextended credit to a speculative market, which then collapsed. Absolute devastation ensued, and thus began the shift from shares to quarter acres. Bankers gotta make bank, after all.  began. This is when the game started, and some spotted the pattern earlier than others. Borrow infinite money created out of thin air, to acquire scarce assets inflated by said money-creation. Post 1987, we’re in the next iteration – what comes next, or will it continue to be property?

Patterns and Turning Points

If you look back, you’ll see a pattern. In 2007, just before the global financial crisis, the median house price was sitting in the mid-300s. Then we hit a long, flat patch until about 2012. From there, things started to pick up—slow and steady. But come March 2020, all bets were off. Interest rates dropped to historic lows, government policy got involved, and suddenly, the market went ballistic.

Note to self: Free market intervention always creates bubbles.

Then came inflation, and with it, high interest rates. Now, everyone’s asking: have things really changed, or is this just another bump in the road?

What’s Next?

Here’s the reality check. If you draw a trend line from 2012 to 2020, you’d expect the market to recover in about six months. But will it be a big, dramatic bounce? Personally, I suspect we have about 2.5 years to go before hitting all time highs, but we’ll see. House prices might have found a bottom, but we’re not heading to the moon any time soon.

There’s also a new twist: younger people are starting to look at alternatives like shares [again], and Bitcoin. A growing portion of the next generation refuses to become ‘boomer’ exit liquidity. That’s making some property owners nervous, while others are just plain curious.

Final Thoughts

In a perfect world, housing would be for lifestyle, and investments for long term planning – regardless, we live in an imperfect world. The real question becomes – what’s your response to it? Jump in for number go up? If so, now’s looking really, really good. *Just keep a lazy eye some of the bigger changes a foot.