Reserve bank predicts house prices will rise by 9.5% over the next two years
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By Susan Edmunds
House prices are now likely to rise much faster over the coming years than the Reserve Bank had previously forecast, the central bank says.
It revised its forecasts in its monetary policy statement on Wednesday, in which it left the official cash rate at 5.5% and suggested it might not now reduce rates until mid-2025.
It now expects house prices to rise by 3.2% between September this year and September next year.
It thinks prices will rise 9.5% in the two years to the end of 2025, compared to a previous forecast of 0.4%.
The bank said house prices had started to stabilise in recent months, and while the outlook was “highly uncertain”, they were assumed to have reached a trough earlier than had been assumed at the last forecast update in May.
Infometrics chief executive Brad Olsen said the Reserve Bank had decided that the low point for house prices had passed, more than a year earlier than had been expected.
“They’ve got a swing coming through in house prices. From an affordability point of view, if you’ve got no change in mortgage rates, and prices are hockey sticking up a bit, affordability will be even more cooked. It’s a bit difficult to stomach.
“When the Reserve Bank says house prices are around that sustainable level… if that’s sustainable to them, I’d hate to see what’s unsustainable.”
He said it seemed the bank was clearly “awake to the idea” that another rate increase could be needed, although it was not its current expectation.
“The way that I’m reading their forecasts is that they’re putting a small probability on that happening.”
But a swifter or bigger increase in house price growth was something that could make it act.
“If you’re starting to see that much more energy jump back into the housing market, despite higher interest rates, it indicates that people have money to spend. If they have money to spend it’s unlikely inflation will come down as much as hoped and expected.”
Corelogic chief property economist Kelvin Davidson said he shared the bank’s view that while the downturn was essentially over, the upturn could be relatively subdued, with prices still below their 2021 peak in 2026.
Davidson said his caution about the next phase for the housing market stemmed from the fact that affordability was stretched, mortgage rates were not likely to drop for at least six to nine months and there was the potential for debt-to-income caps to be introduced.
“Of course, it does also need to be acknowledged that many economic variables have moved quicker than anticipated in this new post-Covid world, and the combination of low new listings flows each week but rising sales volumes means the level of housing stock on the market is declining. This could potentially trigger some more abrupt competitive price pressures amongst buyers than we’re currently anticipating, although in turn this would tend to bring forward more listings and mitigate some heat for prices.”
Miles Workman, senior economist at ANZ, said the updated forecasts could have an impact on home loan interest rates.
“It all comes down to how wholesale markets interpret it.
“Before the Reserve Bank decision, market pricing was for a slightly higher OCR in the near term, but around 50bps of cuts by November 2024. Today’s signal from the Reserve Bank suggests markets could reassess that, which would add to upside risks to two- and three-year swap rates, and therefore upside risks to fixed mortgage rates (all else equal).”
Kiwibank economists, who had expected rates to be cut as early as February, changed their forecast to May.
