Most major banks and many industry commentators had forecasted huge decreases in property prices around New Zealand due to COVID-19.  Back in March, Westpac forecasted a 7% drop. In May, BNZ expected a 12% dip and in July, ANZ forecasted a fall of 5-10%.

That’s why what really happened took us all by surprise. 

Instead of a price drop, we’ve seen a huge price increase nationally, to the tune of 16.4% during the year to August (REINZ). With that in mind, I’m making the bold prediction that house prices will continue increasing in 2021 and beyond. Here’s why.

1.  Interest rates should stay low for now

The Reserve Bank of New Zealand have signalled they may introduce negative interest rates in early 2021. That means by mid next year, we could start to see mortgage interest rates fall even further, possibly even below 2%. When money’s cheap, buyers are able to pay more, which will help sustain house price growth in 2021.

2.  The economy will recover

The NZ economy took a huge hit from COVID-19, with GDP dipping by 12.2% in the June quarter, but things are looking surprisingly good going forward. On October 5th, Westpac economists forecasted NZ’s GDP would increase by:

• 8.3% for the September 2020 quarter
• 3.7% for the December 2020 quarter
• 0.5% and 1.3% for the first two quarters of 2021

This robust recovery will also help to keep the property market going full steam ahead.

3.  Commercial property is not looking good

Commercial property was hit hard during the lockdowns with many tenants defaulting on rent payments. As a result, we’ve seen plenty of anecdotal evidence of commercial property investors turning to residential property and increasing demand.

4.  Construction is falling and we still don’t have enough houses

In the second quarter of 2020, total building volume fell 22 per cent, according to Statistics NZ. We have housing shortage in New Zealand and even before COVID-19, we didn’t seem to be building enough to keep up with demand. In late 2020 and 2021, I expect that this demand/supply mismatch will only get bigger thanks to low interest rates and high levels of demand from returning Kiwis.

5.  The experts say so

The property market has completely defied expectations since March and experts are now forecasting NZ house prices will rise in 2021:

• Westpac is expecting an 8% increase
• Independent economist Tony Alexander is forecasting a 5% increase
• ASB is forecasting a 3.2% increase

COVID-19 might have scared you away from the property market, but with house prices increasing fast, now could be as good a time as any to purchase your next home or investment.