There are many fundamental reasons why house prices have been rising so strongly recently and they can be summed up in one word – expectations.
People are not only buying property because interest rates are low now, they expect they will be low for a number of years. This applies not just to expectations of low mortgage rates, but also record low term deposit rates offered by banks. Currently, anyone placing funds with a bank at the common rate across almost all terms of 0.8%, will see their money shrink by 1% - 1.5% in real terms after adjusting for tax and then inflation.
Expectations of this situation continuing for years are encouraging people to buy many different types of assets and especially those which have a history of producing not just a yield along the way, but some capital gains as well.
People also expect that when the borders fully reopen we will see many of the one million Kiwis stuck overseas come back home. Most won’t, but enough will to make a difference and people are buying before these new buyers enter the market.