Table of Contents
Inflation in New Zealand
When Will House Prices Hit the Bottom?
NZ Banks | Strict Lending
Conclusion
FAQ
In this blog Nathan Najib discusses the inflation rate and how the New Zealand National party is bringing policies to rebuild the NZ economy. He gives advice on how to navigate the current real estate market and tips on the best time to buy and sell.
Inflation is when prices for goods and services rise, making your money less valuable. The common factors that cause inflation are:
Cost-push inflation
This happens when production costs rise and overall prices in the economy increase.
When businesses face higher costs, they may pass these costs on to consumers in the form of higher prices resulting in:
- Oil price increase
- Workers asking for a raise
- Land prices increase
- Rent increases
Demand Pull Inflation
This happens when there is a shortage of supply and high demand for products, usually seen after a prolonged period of country closure like it was seen during the post pandemic. This was a classic example for New Zealand post pandemic resulting in
- Too much demand for a product
- Reduced tax and interest rates
- Printing money means feeding money into the economy which can lead to people making more money as witnessed by the rampant printing of billions of dollars and uncontrolled expenditure during the pandemic.
- A healthy annual inflation rate needs to be under 2% for it to be at an affordable level.
This is important because if the prices of products are increasing at a higher rate, it can lead to affordability issues, especially if salaries are not increasing proportionally with the cost of living.
New Zealand is currently at a 4% inflation rate. This marks the lowest point in nearly three years since the pandemic began.
The following strategies implemented by Chris Luxon will help the NZ economy to bring the inflation rate down to 2%:
1) NZ Government has canceled the $15b Auckland Light Rail project to use funds to prioritise other transportation projects.
2) Many government departments have laid off employees.
3) They removed the first home grant from this year
4) They have brought back a single mandate.
5) Keeping the official cash rate stable
Check out our latest video where Nathan talks about the First Home Grant GONE in New Zealand. He also explains how removing this policy will affect the Real Estate market positively.
Interests Rates NZ
Inflation reached its highest level in 13-14 years in 2022, and the government's latest actions are helping to curb inflation. One of the key measures has been to increase the interest rate to 7%, which has effectively slowed down wasteful spending and reduced inflation.
Nathan Najib predicts that the lowest point in the nz housing market, known as the "winter," is expected to occur at the end of 2024 or early 2025. He has spoken about this in the past and we recommend you to read our in-depth blog on NZ House Price Predictions to help you understand better.
Many homeowners who can't afford the high interest rates and high cost of living, it would be best to sell their properties now rather than waiting for the market to recover as it will take time.
While this will pose challenges for many Kiwis over the next 12 months, it will ultimately help the country get back on track and make life more affordable for everyone.
Read our blog where Nathan Najib predicts 6 reasons winter is on its way
Nathan suggests we are on our way towards winter, it will take time, possibly early 2025 for buyers who are looking to buy properties at low interest rates.
It's important to note that it takes time to hit the bottom (winter) and it won't bounce back instantly.
Once the interest rates lower and people regain confidence, house prices will start to move upward at a healthy growth of 2% to 4% annually.
Currently in New Zealand, banks have adopted strict lending practices, which is impacting individuals' ability to secure mortgages for a property.
Even though you might have a good track record of paying bills on time or money to make a good down payment, banks are likely to reject your lending approval.
Nathan recommends that instead of being disappointed by these strict lending rules, individuals should focus on
1) Building their savings
2) Increasing their income to strengthen their financial position
3) Keeping a track of market conditions vigilantly
4) This will help them be prepared to act when lending policies become more flexible and can be beneficial in navigating the current lending landscape.
The current real estate market in New Zealand presents both challenges and opportunities. Sellers might find it better to act now rather than wait for potential market declines, while buyers are encouraged to be patient as we predict the market to reach its low point by late 2024 or early 2025.
The NZ government's policy changes aim to help the market and reduce inflation, ultimately benefiting the real estate sector and home buyers.
Are the interest rates going to drop this year in New Zealand 2024?
If inflation is falling, it could potentially lead to a situation where central banks may consider lowering interest rates to stimulate economic activity.
However, the decision to lower interest rates ultimately rests with the Reserve Bank of New Zealand (RBNZ) and is based on their assessment of economic conditions and their inflation targets.
Will NZ House Price crash?
The real estate market in New Zealand may experience challenges, particularly with falling inflation rates and increasing interest rates. Potentially making a low point in the housing market around the end of 2024 or early 2025.
While a "crash" in house prices implies a sudden and significant decline, it's important to note that market corrections can occur gradually over time.
Why are banks being strict on lending?
Banks have adopted stringent lending practices due to the current state of the economy. During economic uncertainties, banks tend to exercise caution in lending money, leading to increased challenges for individuals seeking financing for property acquisitions.
Tips for Mortgage rates and borrowing
Many NZ Banks are strict currently in lending money to kiwi individuals. It is advised to focus on building savings, increasing their income, and maintaining a vigilant approach towards monitoring market conditions.
When is a good time to buy a house in New Zealand 2024?
Experts anticipate that the housing market will reach its lowest point, known as the "winter," at the end of 2024 or early 2025. However, it's important to note that recovery from this point may take time.
What is considered a healthy inflation rate nz ?
Typically, economists consider an inflation rate under 2% to be healthy. Experts consider this level affordable because rapid price increases can cause cost of living issues.
Will inflation nz go down?
In order to bring the economy back on track, the governments current policies are expected to bring to slow down the economy further and bring the inflation rate down.
What is OCR?
Official cash rate. Find out more