See full article from Stuff below:
By Susan Edmunds
House prices may have fallen about as much as they are going to, ANZ economists say.
In their latest Property Focus report, they said that the Reserve Bank’s proposal that loan-to-value restrictions be eased, combined with stronger recent housing market data and some falls in fixed mortgage rates, indicated prices were likely to only fall 18% from their November 2021 peak.
They previously expected 22%.
Prices are already down 16%, meaning there is only another 2% to go.
The economists said auction clearance rates in Auckland suggested downward price momentum in that market might have already turned a corner.
“Clearance rates and prices tend to move together, as a tighter market will typically see more properties sold under the hammer than by negotiation.”
They said migration had also surged in recent months, which could increase demand for housing.
“Our working assumption is that after pent-up demand dynamic 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 we’d be looking at an annual inflow of 140,000 by this time next year so the risks look skewed strongly to the upside.”
That would mean “materially stronger activity and housing outcomes”, they said. “As we noted recently, a miss this size could be significant enough to keep the economy out of recession.”
They said pressure on fixed mortgage rates had become less intense as wholesale interest rates stabilised.
But they warned that if the housing market proved more resilient the Reserve Bank might think it was not getting the traction it needed and push the official cash rate higher.
“With CPI inflation as high as it is, the Reserve Bank is unlikely to have a lot of tolerance for green shoots in housing as that’s likely to lead to higher consumer demand and CPI inflation than otherwise.
“The good news it that Q1 CPI inflation wasn’t quite as high as the Reserve Bank’s February forecast so for now we think housing should get a ‘free pass’.”
The ANZ economists said downside risks had not “suddenly vanished”. “The CPI could prove more persistent han expected, necessitating further rate hikes – and therefore higher mortgage rates – or monetary policy lags could be just about to catch up to the labour market, with a larger shock to household incomes and more forced house sales than we assume.
“Indeed, for housing, it doesn’t really matter which side of the tightrope the RBNZ falls. If it overshoots, housing will likely deteriorate via the income channel (higher unemployment associated with a hard landing); if it undershoots housing will likely deteriorate via the interest rate channel, as the RBNZ has to play catch-up with the OCR down the track.”
They said “animal spirits” in the housing market could get very wild and were very difficult to capture in a consistent way in modelling.
“Which is at the end of the day largely why economists are so bad at forecasting the housing market. Ultimately, house price forecasts require a decent dose of judgement on top of any ‘fundamentals’ view. And we are very aware of the possibility that we’ve got this wrong – we’re just not sure if we’re too pessimistic, or too optimistic.
“As the eventual floor in housing approaches, we are becoming wary that there’s a potential cohort of would-be buyers out there, waiting to get in at the low point. The irony is, if they do this in droves and housing picks up steam, it’ll probably stoke CPI inflation along the way, and if the Reserve Bank deems that to be premature and inappropriate, it’ll very likely lead to a renewed round of OCR hikes and an eventual renewed downtrend in house prices.
“So while animal spirits may well surprise our (and the Reserve Bank’s) outlook, the Reserve Bank has the tools to tame this beast if needed ,no matter how wild it gets.”
Source: Stuff
