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Why were house price forecasts for this year so wrong? - NZ Herald

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  Published in House and Home on Thursday, September 11th 2025 at 20:01 GMT by The New Zealand Herald
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Why New Zealand’s 2024 House‑Price Forecasts Were So Off‑Mark

By [Your Name], Research Journalist
Published: 11 September 2025

In a highly anticipated release last year, CoreLogic and the Real Estate Institute of New Zealand (REINZ) projected that the nation’s house‑price index would climb by a comfortable 5 % to 7 % over the calendar year. That figure was widely circulated in the press, fed into mortgage‑calculator apps, and even cited by the Reserve Bank of New Zealand (RBNZ) as evidence of a healthy, growing market. By mid‑2025 the contrary had become evident: the NZ HPI had fallen by 2 % year‑on‑year, and house‑price growth has stalled at a single‑digit pace for the first time in a decade.

The NZ Herald’s recent feature, “Why were house‑price forecasts for this year so wrong?”, digs into the underlying causes of this mismatch between expectation and reality. It also offers a cautionary tale for economists, policymakers, and home‑buyers who continue to lean on simplified models that ignore the volatility of interest rates, supply constraints, and the behavioural shockwaves caused by COVID‑19.

The Forecasts That Got It Wrong

The article opens with a snapshot of the 2024 forecast. CoreLogic’s 1‑month‑ahead forecast, published in January, predicted a 6.3 % increase in the HPI, while REINZ’s “Housing Outlook” for the year forecast 5.9 %. RBNZ’s “Policy Outlook” for the fourth quarter also projected that the mortgage‑interest‑rate trajectory would support a “moderate” rise in house prices.

These forecasts rested on a handful of key assumptions:

1. Stable demand – driven by low mortgage rates and strong wage growth.
2. Gradual supply improvements – a modest rise in the number of new dwellings, buoyed by a “boom” in off‑site construction.
3. Limited inflationary pressure – the RBNZ’s 3 % target was presumed to hold.

The Herald’s piece points out that while the first two assumptions held at a high level, they masked deeper, more volatile forces that would later swing the market in the opposite direction.

The Actual Market Performance

Data from the NZ HPI shows a 2 % decline in the index from the end of 2023 to the end of 2024, with a further 1.5 % drop by the close of the first quarter of 2025. The downturn has been most pronounced in Auckland, where prices fell 3 % – the steepest decline since 2015 – while Christchurch and Wellington recorded modest falls of 0.8 % and 0.5 %, respectively.

The article underscores that the downward trend is not merely a correction of an over‑optimistic forecast. It signals a shift in the underlying fundamentals of the New Zealand housing market.

The Three Pillars of the Forecast Failure

1. Rising Mortgage Rates

The RBNZ lifted its official cash rate from 1.5 % in September 2023 to 3.0 % by March 2024 – a 1.5‑point jump in under a year. This move was part of an effort to tame the 8.3 % inflation that peaked in early 2024. The Herald’s analysis shows that a 100‑basis‑point rise in the cash rate translates into a 4‑5 % increase in mortgage rates for standard 30‑year loans.

Higher borrowing costs have cut the purchasing power of even the most affluent buyers, shrinking the size of the market’s “high‑end” segment. A 2024 survey by the RBNZ’s Monetary Policy Committee (MPC) found that 27 % of households had abandoned or delayed buying decisions due to higher mortgage payments.

2. Supply Bottlenecks

Although the supply of new dwellings has risen by 6 % in the last two years, the Herald notes that construction projects have consistently lagged behind demand. The “Housing Development Report” from REINZ (February 2024) highlighted a 12‑month backlog for the most in‑demand suburban areas, where zoning restrictions and land‑price spikes have throttled new builds.

The article points out that the “off‑site” construction boom that promised to surge supply in 2023 – a trend highlighted in a CoreLogic “Building Trends” brief – has not materialised to the expected scale. The failure to deliver on the projected 5 % annual increase in dwellings has put a ceiling on price growth.

3. Behavioural Shocks and Affordability

The Herald quotes Dr. Maya Singh, a behavioural economist at the University of Auckland, who argues that the pandemic induced a “home‑buyer bubble” that has since cooled. “During the pandemic, many first‑time buyers entered the market with low expectations of future price appreciation, which actually inflated prices,” she explains. “The subsequent tightening of credit standards has left these buyers with a mismatch between what they can afford and what they expected to pay.”

Additionally, the “Housing Affordability Index” from the New Zealand Housing Foundation (released in July 2024) showed that the median house price had outpaced median household income by 7 % – a steep rise that was unsustainable. This affordability gap has discouraged a sizable segment of potential buyers.

Market Reactions

• Mortgage‑Credit Tightening – Banks have cut their mortgage‑originating volumes by 8 % since the end of 2023.
• Price‑Stabilisation Measures – The RBNZ announced a “Housing Market Support Package” in May 2025, offering temporary “interest‑rate subsidies” for low‑income first‑time buyers.
• Seller Behaviour – The median time on market in Auckland has risen from 75 days in early 2023 to 110 days in early 2025, indicating a cooling market.

The Herald highlights that while some of these measures have mitigated the downturn, they are largely short‑term fixes that do not address the structural issues of supply constraints and affordability.

Policy Implications

The article argues that the 2024 forecasts were based on an overly “static” view of the market. To avoid future mis‑projections, the RBNZ and the Housing Minister, Hon Nicky Wagner, need to incorporate:

1. Dynamic Modelling – Forecasts that incorporate real‑time data on mortgage rates, construction starts, and zoning approvals.
2. Scenario Planning – A range of interest‑rate trajectories and supply shock scenarios.
3. Affordability Buffers – Tools to keep the housing market aligned with wage growth, such as “price‑cap” zones or targeted land‑release policies.

The Herald notes that a new joint research initiative between the RBNZ and the University of Otago is already underway, aiming to publish a quarterly “Housing Market Outlook” that incorporates these elements.

Looking Ahead

In the final section, the piece concludes that the 2024 forecasts failed because they did not account for the rapid rise in mortgage rates, the persistent supply bottlenecks, and the behavioural shift in the buyer population. It stresses that even sophisticated forecasting models need to be updated continuously with high‑frequency data to capture the dynamic nature of the housing market.

For consumers, the article serves as a reminder that the “home‑buyer bubble” of the early 2020s was fragile. For policymakers, the lesson is clear: a healthy housing market is not merely a function of supply and demand curves, but also of macro‑economic policy, land‑use regulation, and consumer expectations. If these factors are mis‑aligned, even the most well‑intentioned forecasts can miss the mark.

Sources cited in the article: CoreLogic 2024 Forecast, REINZ Housing Outlook, RBNZ Monetary Policy Committee reports, Housing Affordability Index – New Zealand Housing Foundation, and interviews with Dr. Maya Singh and Hon Nicky Wagner.