27/09/2023
Factors Driving House Prices:
A possible10% Increase in 2024 and 15% Rise by 2025
The real estate market is a dynamic and ever-evolving landscape influenced by a myriad of factors. After experiencing a 4% increase in house prices this calendar year, many experts and analysts are predicting even more substantial growth in the near future. In this article, we will explore the key factors that are expected to contribute to house prices rising by around 10% in 2024 and a further 15% by 2025.
1. High Net Inward Migration Boosting Population Growth
One of the primary drivers behind the anticipated increase in house prices is the continued high net inward migration, which is expected to boost population growth. As more people move to urban centers in search of better opportunities, the demand for housing is set to surge. This increased demand will put upward pressure on prices, making it more challenging for prospective buyers to enter the market.
2.Falling Construction of New Dwellings until a Turnaround in 2025
The supply-demand imbalance in the housing market is another critical factor. While demand is on the rise, the construction of new dwellings has been lagging. This gap between supply and demand is expected to persist until a turnaround, likely in 2025. Until then, limited housing inventory will contribute to higher prices, creating a competitive environment for buyers.
3.Falling Mortgage Interest Rates Through 2024 and 2025
Low mortgage interest rates have been a significant driver of housing market activity in recent years followed by a doubling of interest rates this past 12 months. The return to lower rates through 2024 and 2025 is expected to incentivize more people to enter the housing market, further increasing demand. Lower rates make homeownership more accessible and appealing, which can push prices higher.
4.Rising Rents
Rising rental prices can also impact house prices. When rental rates increase, some renters may consider transitioning to homeownership, further increasing demand for houses. This shift in preference can contribute to a rise in house prices as more buyers enter the market.
5.Falling Listings Contributing to Rising FOMO and Falling FOOP
Fear of Missing Out (FOMO) and Fear of Over-Paying (FOOP) are psychological factors that can significantly impact the housing market. Falling listings, combined with high demand, can create a sense of urgency among buyers, leading to competitive bidding and higher prices. Sellers may hold back listings in anticipation of better prices, exacerbating the FOMO effect.
6.Rising Tourism Taking Accommodation Back to Short-Term Holiday Rentals
The resurgence of tourism and the popularity of platforms like Airbnb can affect the housing market. Some property owners may choose to shift their properties from long-term rentals to short-term holiday rentals to capitalize on the tourism boom. This reduction in available rental units can increase rental prices and create more competition in the housing market, pushing prices upward.
7.Rising Foreign Student Numbers Boosting Rental Demand
Cities with educational institutions, like Auckland CBD, may see increased demand for rental properties due to rising foreign student numbers. International students often seek accommodation in the vicinity of their schools, driving rental demand in these areas. This heightened demand can lead to higher rental prices, making the prospect of property investment more attractive to landlords and investors.
8.Relaxation of Investor Tax Rules
Government policies and tax regulations play a crucial role in the real estate market. If there is a change in government and a relaxation of investor tax rules, it could encourage more investment in the housing market. Investors may find it more appealing to enter the market, increasing overall demand and potentially driving prices higher.
Conclusion
The trajectory of house prices is influenced by a complex interplay of economic, demographic, and policy factors. After witnessing a 5% rise in house prices in the current calendar year, the anticipated 10% increase in 2024 and 15% rise by 2025 can be attributed to factors such as high net inward migration, falling construction of new dwellings, low mortgage interest rates, rising rents, and changing market dynamics like FOMO and FOOP. Additionally, tourism, foreign student numbers, and potential changes in investor tax rules can further impact the housing market's growth. Buyers and investors should remain vigilant and adapt their strategies in response to these evolving conditions in the real estate market.
