We’re At The Bottom Baby! – Why The Housing Market Will Turn In May

By Lighthouse | May 8, 2023 | 10 Min read

As the New Zealand housing market experiences shifts and changes, understanding the current trends and their implications is crucial for homebuyers, investors, and policymakers. Recent indicators suggest that we may have reached the bottom of the housing market, presenting potential opportunities for those looking to enter or invest in the property market.

Inflation Peaking

One of the factors contributing to the potential bottoming out of New Zealand’s housing market is the peaking of inflation. Inflation in Aotearoa appears to have reached its peak, which may signal a stabilisation in the economy. When inflation stabilises, it can lead to increased confidence in the overall economic situation, impacting various sectors, including the housing market.

Peaked inflation can result in more predictable and stable pricing for goods and services, allowing businesses and consumers to make decisions with greater confidence. This stability can create an environment in which both demand and supply in the housing market are more balanced, contributing to a market bottom. With inflationary pressures easing, there is a greater likelihood of price stability in the housing market, which can provide opportunities for buyers and investors to enter the market with a clearer understanding of the prevailing conditions.

RBNZ’s Official Cash Rate (OCR) target and expected changes

Another factor influencing the potential bottoming out of Aotearoa’s housing market is the Reserve Bank of New Zealand’s (RBNZ) Official Cash Rate (OCR) target and the anticipated changes to it. The RBNZ is nearing its 5.5% OCR target, with a 0.25% increase expected in May. Following this adjustment, no further increases are anticipated in the near future.

The OCR has a direct impact on interest rates and, consequently, the cost of borrowing for homebuyers and investors. As the RBNZ approaches its target and interest rate hikes slow down, the housing market can experience a greater sense of stability. This stability can contribute to the market reaching its bottom, as it reduces the uncertainty surrounding borrowing costs.

With the expectation of stable interest rates, homebuyers and investors in New Zealand can make more informed decisions about entering the property market, taking advantage of the opportunities that arise from a market bottom.

Easing Loan-to-Value Ratio (LVR) restrictions

The easing of Loan-to-Value Ratio (LVR) restrictions is another contributing factor to the potential bottoming out of New Zealand’s housing market. LVR restrictions are beginning to loosen, which may have a positive impact on the housing market.

LVR restrictions determine the amount of a loan that can be borrowed relative to the value of a property. When these restrictions are tight, it can be more challenging for homebuyers, especially first-time buyers, to secure the necessary financing to enter the market. Conversely, when LVR restrictions ease, it can become more accessible for a wider range of buyers to secure mortgages and participate in the housing market.

As LVR restrictions begin to loosen, the housing market may experience an influx of new buyers, contributing to increased demand and market activity. This increased activity, coupled with the other stabilising factors mentioned earlier, can help support the notion that the market has reached its bottom. Consequently, this creates potential opportunities for buyers and investors to enter the market with a clearer understanding of the existing conditions.

Increased market activity

A surge in market activity is yet another factor pointing towards the bottoming out of Aotearoa’s housing market. There is a noticeable uptick in housing market activity, including more buyers and sellers participating, as well as increased attendance at open homes.

Heightened market activity can be a sign that both buyers and sellers are gaining confidence in the market, signalling that it may be reaching an inflection point. As more people engage in property transactions, the housing market can experience a shift towards greater balance and stability, contributing to the idea that it has reached its bottom.

This increased activity, combined with the other stabilising factors mentioned earlier, can present opportunities for buyers and investors to enter the market with a clearer understanding of the prevailing conditions. As the market stabilises and confidence grows, it becomes an ideal time for homebuyers and investors to make informed decisions and capitalise on the opportunities arising from the current market landscape.

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