Westpac's economists are warning that the current boom in house prices will not last.
"We think the current boom, in one sense, has already passed its peak," Westpac's Chief Economist Dominick Stephens wrote in the bank's latest housing report.
"We expect the monthly pace of price increases will trend down from here.
"This gradual slowdown in the market will see house prices rise at a slower 7.5% pace in 2022 and zero in 2023.
"Eventually, we expect house prices to fall," he said.
Stephens said the main drivers of a cooling in prices were an expected rise in mortgage interest rates and an improving supply/demand balance.
"We expect mortgage rates to trend higher," he said.
"To be clear, we anticipate no changes to the OCR until 2024, but there are still good reasons to expect interest rates to rise."
These included the market factoring in expected future OCR hikes into wholesale rates, which he said was already happening, the Reserve Bank winding back its quantitative easing and Funding for Lending programmes over the next year or so, and banks being required to hold more capital from mid-2022.
"We expect that the longest term fixed mortgage rates, such as the five year fixed, will start increasing quite soon and two year fixed rates are expected to start rising late this year or early next year," Stephens said.
Changes in the balance between physical supply of homes and demand from buyers would also soon become a drag on prices.
"Residential construction is currently booming at the same time as the population growth rate has crashed," the report said.
Since last September the number of consents to build residential dwellings has increased 16%.
"Meanwhile, annual population growth is on track to slow from 2.4% last year to a low 0.4% per annum, due to the closed border.
"Even after the borders reopen we expect population growth will be slower than before the pandemic, due to tighter government migration policy and we expect construction to remain strong."
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43 Comments
"Stephens said the main drivers of a cooling in prices were an expected rise in mortgage interest rates and an improving supply/demand balance".
Forgot the bit about kiwi's running out of cash due to spiraling living costs.
Rastus
He also didn’t mention the key reason.
Stevens is in total agreement with mikekirk: Mike has been long posting the Feb 18 turn.
And as we all know, Mike says it’s all to do with Saturn and Uranus squaring . . . so there!
Yes, ha ha.
because these correspond to forces of economic friction and disruption.
The square was commencement of turn, not crash.
So, at next juncture (end of June) you have switches down in curve and in October more so (with crash in stock markets)
Mike, you will be right with your predictions one day, OK you were wrong in 2019 and in 2020 but you will end up being right one day, maybe this year, maybe in 5 years, maybe in 20 or 50 years but you will be right one day!
Westpac economists clearly have an issue with their daily medication .
Yes Stephens must be bipolar. Just last week he was predicting house prices will inflate at a high of 20% this July.
Or maybe he is just 'having a bob each way'.
When even the Herald makes this into its front page you know it is evident we are way past sensible and sustainable inflation.
https://www.nzherald.co.nz/business/housing-boom-past-peak-prices-to-fa…
After observing NZ house price for the past two decades, I can safely predict that house prices will normally go the opposite direction of what the bank and government economists predict/guess.
So you think house prices are going to fall a lot this year, fall little next year, and then start rising afterward?
Well xing, I’m confused as to who to believe: 12 months ago the consistent claim on this site by posters was 30 to 50% fall.
Well P8, many commenters on this site have now changed their tunes to "house prices will keep going up", maybe a sign that they will fall indeed?
Yvil
Yes, I think that most are now seeing current price rises as unsustainable.
However, as I think you post elsewhere, I also suspect RBNZ will be acting (such as limiting speed of interest rate rises) so that the market doesn’t has a severe correction.
Who knows. This is like a game of monopoly but where the banker can grab another set, rip open the the box, grab the cash only and dish it out to the house owners only in the game being played.
So much damage being done. I don’t know what to say to young people anymore except how angered I am at what the greedy b##stds are up to - many who gloat on this site.
Beaut analogy
Wrong as I was my consistent forecast was always 25% drop in median by end of 2021. Reason for that (prior to gooding by gov and Mr Orr) was that it would align with reversion to mean increase of 3% pa from 2006-21. Now? Who knows but cannot see any Auckland price median fall in next 12 months
Stephens was the one who predicted 7% increase for last year and everyone laughed as they all supposedly knew better. Turns out he was wrong: he well and truly underestimated it, but he was much more right than anyone else.
No - Westpac were miles out. They were tipping 2020 falls right up until July, when they suddenly changed their tune.
He hasn't talked about the 40% LVRs and incoming further government demand side interventions, nor in general bank tightening against investors. These factors are also key.
Keep in mind that if any of the proposed measures were going to work then they wouldn't be being implemented.
Aroha.
Brock
You really do need to go take those happy pills you forgot to take.
Has anyone been keeping track of his predictions?
Also, "the monthly pace of price increases will trend down from here" is not cooling. A slower increase (7.5%) is still an increase. 7.5% per year is still a huge increase, one might even call it a bull rush.
Right - and talking only in percentages can I think obscure the fact that the amount of the increase is eyewatering. Even if prices in Auckland and Wellington go up by 'only' 5 percent, that's still more than 50k - pretty close to the gross median salary in NZ. Put another way, you'd need to save about $100 a week just to keep up if you're aiming for a 10% deposit. That's on top of trying to save the (at least) 100k you'd need to have a deposit in the first place.
While paying $30k (or more) a year in rent.
You would also need to borrow an additional $45,000 which would result in additional interest paid over the lifetime of the loan of $17,250 (Assuming fixed interest of 2.29%) so you will therefore need to pay back an additional $62,250.
No, he just gets paid regardless.
Of course they would not say they expect prices to fall in the next few months or even the next year since that would seriously affect their main line of business, obviously these predictions must be taken with a pinch of salt or two.
Typo: references to "passed its peak" should be "past its peak".
It looks like this government is going to restrict immigration. They are choosing to be unclear on it, but seem to have that approach. Hopefully they are.
They certainly will ponder about it, maybe even setup a taskforce to get some recommendations, like the one on reviewing the tax system which recommended implementing a capital gains tax. There will be lots of waffle about it and lovely smiles
so where does the double digit wage growth come from to continue to support this ponzi?
crickets
Exactly - price rises have no correlation to wages (but ultimately it has to). Bit like valuing a company based upon net income/free cash flow method. All we've been doing is modifying the discount rate and seeing a resulting rise in asset price.
Similar to share market bubble where its about more debt for share buy backs.
Unsustainable and unlikely to end well.
unsustainable and certain to end
I mean, what could go wrong? https://tradingeconomics.com/new-zealand/households-debt-to-gdp
Cool - synchronised parabolic "recovery".
We will need neg. interest rates to keep going.
Bank economist who drew short straw to give message to the regulators/gov that theres no need for 'bold' measures...the crisis is over and 'moderate growth' is returning
Please, nobody show this article to Adrian Orr. It would prompt an emergency rate cut and a doubling of the FLP programme - at the very least.
Pie in the sky stuff again, no one has got it right to date, house prices have been picked to fall many times over the last 40 years, whilst they have for periods of time every time it has proven to be short lived.
It would take a serious recession for prices to drop, it would seem in this new world Reserve Banks will do anything to prevent recessions so don't hold your breath for dropping prices !
"Warns"??
Er?
Warnings are for danger things nest pas? What is the danger?
If economists know that well, they would had been the richest people in the world.
Now back to reality and make some real money!
Depends on what type of economist you are. Some are the wealthiest people in the world.
Usually quite the opposite happening for NZ, this input from Westpac contradict to recent expected growth in housing price by Mr. Orr statement - Expect the opening border/open seasons for all in 2022, expect more of RBNZ action to sustain the current pricing trajectory, NZ economic growth means = to housing wealth psyche.
What do Westpac economists and Jacinda have in common?
Both are great at giving poor people shoulders to cry on, both suck at economy. :D
One of their previous predictions:
https://www.interest.co.nz/property/104321/westpac-economists-say-after…
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