Looking Back to Look Ahead
For most Kiwi families, interest rates and house prices are more than just numbers - they affect where we can live, what kind of house we can afford, how much our monthly mortgage payments will be, and ultimately, how secure we feel (or not!) in our financial future.
Over the past decade, some of New Zealand’s top economists - Tony Alexander, Cameron Bagrie, and Stephen Toplis - have given predictions on where housing prices and interest rates were headed. In this blog, we’ll take a closer look at what they said, how close their predictions were, and what Kiwi households can learn from it all to make better financial decisions moving forward.
THE PREDICTIONS
Tony Alexander’s Take:
Tony Alexander often talked about how other countries’ economies (especially the U.S. and China) could influence New Zealand’s interest rates. Around 2015, he expected rates to stay low, making mortgages more affordable for many Kiwis. He was right for a while, but when COVID hit, rates fell further than even he anticipated. Tony later warned that rates could jump up sharply to tackle rising costs, which is exactly what happened after the pandemic.
Tony also talked about FOMO (Fear Of Missing Out!) being a big driver of the housing market - people were seeing prices going up, up, up and felt pressured to buy quickly before they got even more expensive.
He expected house prices to stay strong, as there weren’t enough houses in New Zealand to meet the demand; demand that was higher than ever, thanks to low interest rates. But even Tony didn’t foresee the massive surge during COVID, when house prices went up faster than ever. By 2021, he began to advise caution, predicting prices would slow down—and that’s precisely what happened, as interest rates rose and fewer people could afford to buy.
Cameron Bagrie’s View:
Known for being cautious, Bagrie was concerned that low rates were making borrowing too easy, which could push home prices too high. He thought rates might start rising from around 2017, but the Reserve Bank actually kept them low longer than expected, to help the economy.
He warned that eventually, house prices would have to slow down, because Kiwi incomes weren’t keeping up. He was right on the money with his predictions - higher interest rates made it harder for many families to buy, causing the housing market to cool.
Stephen Toplis’ Perspective:
As a bank economist, Toplis’ focus tended to be on the Reserve Bank of New Zealand, and how it was likely to respond to changes in the economy.
He warned that interest rates could rise significantly if costs started getting out of control - and he was right. After the pandemic, interest rates rose very quickly to combat inflation, making most household budgets much tighter.
On the housing market, Stephen felt prices would start to level out. He didn’t predict a price crash, but thought a “soft landing” - where prices stop rising, but don’t fall too sharply either - was likely. After all those years of rapid growth, the market did indeed cool - but the much higher interest rates certainly didn’t make the landing feel all that “soft” for many households!
HOW IT PLAYED OUT
Economists like Alexander, Bagrie and Toplis were right in many ways, but they couldn’t predict the exact timing or scale of events - especially during unprecedented times like a global pandemic!
Interest rates stayed lower than predicted for longer than predicted. This helped keep mortgages affordable for a long time, driving up demand and thus house prices.
Then COVID came, and off the back of it, massive inflation. To combat that inflation, interest rates rose (quickly, and significantly), and between 2021-2023, many Kiwis saw massive increases in their mortgage repayments.
When rates went up, the housing market slowed, showing that prices can change quickly based on interest rates and demand.
KEY LESSONS FOR KIWIS FROM THE PAST DECADE:
Here are some useful takeaways that can help you make informed decisions:
1. Make the Most of Low Rates
Low rates make getting onto the property ladder more affordable, but when assessing what your expenses will be with a mortgage, remember that rates can turn quickly. It’s important to factor a buffer into your budget, for when costs go up.
Low rates can also be an excellent time to save or pay down debt - you could utilise the low interest period to build your family a financial cushion, to pay off any other debts you have that have higher interest rates, or to pay a bit more just than the minimum mortgage repayments, decreasing your principal and shaving years off your mortgage.
2. Buy Within Your Means
The housing market can have sudden price surges, but these can slow down too - so do your best not to buy out of panic or FOMO. Setting a clear budget (with that buffer we mentioned above) and sticking to it can help you avoid overextending yourself. If buying seems out of reach, it might be better to wait rather than stretch too far financially.
3. Play the Long Game
Economists make forecasts, but the housing market can be hard to predict precisely. Buying a home should be part of a long-term plan; not an investment you expect to rise quickly. (After such a sharp and sustained rise in house prices over the past decade, it’s not surprising some people had that perspective!)
4. Read the Signals
When economists warn of high prices or interest rate hikes, they’re giving helpful signals. For families, this can mean reviewing your budget, checking your loan terms, and asking yourself if your finances can handle changes in the market.
Over the past ten years, New Zealand’s housing market and interest rates have seen both some predicted changes, and some surprising turns. While experts may give us strong clues, it’s clear that there’s always some level of uncertainty.
The best way to manage this as a household is to plan carefully, set and keep to a budget, and stay informed. Also consider advice from a financial expert, as part of a broader and more long-term approach to financial health. By balancing knowledge with caution, Kiwi families can make confident, resilient choices—whether they’re buying their first home, refinancing their mortgage, or simply planning for the future.
Need some solid advice from an expert?
WealthHealth founder Craig is a certified Financial Advisor with over 20 years’ experience
and a globally-recognised designation. Get in touch, and let’s chat!
ARTICLE SOURCES
https://www.oecd.org/en/topics/sub-issues/economic-surveys/new-zealand-economic-snapshot.html
https://www.focus-economics.com/countries/new-zealand/
https://tradingeconomics.com/new-zealand/inflation-cpi
https://www.rbnz.govt.nz/statistics/series/economic-indicators/survey-of-expectations
https://www.rbnz.govt.nz/education/explainers/economic-projections-explained
https://www.westpac.co.nz/business/tools-rates-fees/economics/economic-reports/
https://tradingeconomics.com/new-zealand/forecast
https://www.reuters.com/markets/new-zealand-house-prices-rise-6-next-year-lower-interest-rates-2024-
https://www.wsj.com/economy/new-zealand-forecasts-return-to-budget-surplus-in-2027
Our blog is not intended to be taken as personal advice and is for informational purposes only.
Before acting on this information, contact our mortgage broker to ensure it is suitable for your circumstances.