Predictions cut for rising house prices
Two of the country’s major banks have slashed their house price growth forecasts for the rest of the year.
Thursday, June 27th 2024, 9:53AM
by Sally Lindsay
Westpac has cut its estimates from 5.8 percent down to just 2.1 percent, while ANZ has gone even further saying it expects growth to be just one per cent, down from a previously forecast three per cent.
Westpac chief economist Kelly Eckhold says slow momentum in the house market since last year combined with the Reserve Bank’s “tough love” message of keeping interest rates higher for longer are the key.
He says there is a reasonable relationship between changes in short-term mortgage rates and house price growth.
However, the RBNZ’s stance has hardened in recent months reflecting the still uncomfortably high inflation outlook.
“In contrast to our own expectation of a lower OCR from February 2025, the RBNZ has indicated a longer period before lower interest rates become a realistic prospect.
“While this pessimism persists, it seems hard to see a significant pick-up in house prices this year.”
Eckhold says Westpac’s long-running ‘investor value’ model suggests the housing market is roughly fairly valued now.
“While the ‘investor value’ is not a forecast, we find that house prices tend to gravitate towards it over time.
“Rising mortgage rates and the removal of interest deductibility for investors in 2021 meant the housing market had turned overvalued since early 2022; the new Government’s commitment to restore interest deductibility has removed this downward pressure on prices, rather than providing a substantive boost.”
Westpac is taking a more optimistic view of house prices next year, predicting a more modest downgrade to 6% growth.
“The ongoing mismatch between housing demand and supply remains. The impact of that mismatch (and ongoing above general inflation rent increases, plus improvements in investor tax treatment) points to higher house price growth,” says Eckhold.
Nobody can forecast market
ANZ says following May's weaker than expected Real Estate Institute of New Zealand (REINZ) data and taking a signal from the forward indicators, has led to it downgrading its house price forecast.
In its latest Property Focus the bank says it's worth noting that while a downgrade from three per cent to one per cent can give the impression that it’s able to forecast the housing market with a high degree of precision, it can't and nor can anyone else.
Chief economist Sharon Zollner says the housing market has crossed a threshold warranting a forecast update and the upside and downside risks feel more balanced around a one per cent year-on-year rise this year.
"In the big picture, this is only a tweak to our forecast, and it is probably best thought of as a delay to what we were previously expecting: modest growth, with gradually falling mortgage rates offset by softening household income prospects (including job security fears), as the labour market cools."
ANZ's economists are now expecting house prices to go broadly sideways over the next few months, before rising gradually towards the end of the year.
Investors disappear again
Meanwhile independent economist Tony Alexander’s latest survey of property investors shows 10 per cent of respondents are now worried about prices falling, compared to less than four per cent at the start of the year.
Finding good tenants has become more difficult and the average rent increase which landlords say they will try to achieve in the coming year has fallen to the lowest level since this particular survey started three years ago.
That average is 4.9 per cent compared with 5.6 per cent early this year and 6.3 per cent in July last year. The rental market has deteriorated for landlords at the same time as the residential real estate market has weakened.
Investors are also deserting the market. Alexander’s latest real estate agents survey shows a net 25% say they are seeing fewer investors in the market, down one per cent on January, even though the Government has reinstated interest rate deductibility, which the previous Labour Government removed in March 2021.
« Interest rate expectations: It’s not over yet | RBNZ: house prices may rise 7% a year in next two years » |
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