House price falls predictions drop

The bank’s economists say housing market data has come in stronger than expected and on the back of some falls in fixed mortgage rates and the proposed easing of high loan-to-value restrictions, it prompted them to adjust their forecast to 18% based on the OCR peaking at 5.5% next month.

Recent data suggest the floor for the housing market is approaching a little faster than previously forecast, says Sharon Zollner, ANZ chief economist.

She says broadly speaking, housing market resilience appears to be boosted by a couple of key factors:

• Fixed mortgage rates could be close to their peaks, and some longer-term fixed rates have even fallen recently. It’s unclear  if the RBNZ will be happy with this development. On the one hand, any newfound strength in housing will likely lead to higher- than-otherwise CPI inflation, but on the other hand, the RBNZ probably has a little more wiggle room than it thought it had given that April’s CPI came in weaker than it was forecasting in February. “If the RBNZ feels mortgage rates should be a little higher than currently, perhaps because wholesale pricing and bank funding spreads are not quite consistent with its assumptions, then it will hike by more to get them there,” says Zollner. 
• Net migration has surged in recent months, and if sustained at recent levels could end up leading to materially stronger activity and housing outcomes. Zollner says a working assumption is that after pent-up demand dynamics have played out, net migration will settle at an annual net inflow of around 40,000 in 2023. But if the February pace was maintained for a year, the country would be looking at an annual inflow of 140,000 by this time next year, so the risks look skewed strongly to the upside.