Westpac's chief economist Dominick Stephens is picking a firm housing market over summer but warns that house prices could start falling in 2020.
In Westpac's latest Home Truths newsletter Stephens wrote that there were clear signs that recent falls in mortgage interest rates had boosted the market.
"It is clear that the rate of house price inflation has lifted recently," he said.
"This acceleration is coming from Auckland and Canterbury, which have shifted from slightly falling to slightly rising house prices, and from Otago and Southland, where house prices are rising fast.
"Meanwhile, the rate of inflation in Wellington and few nearby regions has eased a little."
Stephens said rising sales volumes were a good pointer to the short term outlook for prices and the lift in sales reported by the REINZ in October was a good indicator that house price inflation was set to accelerate.
He picked that house prices could rise 1.5% in the March quarter, mainly driven by lower interest rates.
But he also waned that the lift in the market could be short lived.
"Mortgage interest rates will not keep falling forever," he said.
"Actually, wholesale fixed interest rates have risen quite sharply over the past week or two.
"That should at least arrest the decline in fixed mortgage rates, if not reverse it.
"This is why we think the current housing market upturn will be short-lived.
"We remain convinced that mortgage interest rates will eventually rise significantly.
"At that point, we expect the housing market to be severely impacted.
"But with the Reserve Bank looking to keep the OCR low for some time, this is more a story for the 2020s than the current decade.
"We are forecasting falling house prices in the early 2020s."
Here's a link to the full Home Truths report:
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102 Comments
Price will rise .......Must be joking.
Most Data / News / Opinion are motivated and trying to influence or to create a confusion - trying to delay the inevitable that is house price will and are falling (Percrantage can be debated). Maximum one cay say, if very positive is that the house price will be stable but cannot say not falling (Which they are at the moment) and to say that house price will rise.....
Is the gentelmen ready to put his job on fire if his prediction is not correct.
"Actually, wholesale fixed interest rates have risen quite sharply over the past week or two."
"We remain convinced that mortgage interest rates will eventually rise significantly."
"We are forecasting falling house prices in the early 2020s."
I know it looks like i'm cherry picking from above but these are statements that have not been previously allowed to come out of banks. Economist or not, this report would not have been allowed to see the light of day unless Westpac believed in what they are saying. I do take all predictions of timings with a grain of salt but the tone has significantly shifted.
Take it at face value then.
Are you going to buy an asset that predicted to start falling in just over a year time?
Secondly. The fact that banks ARE making statements like this at the moment indicates to me that they are worried. The real bank economists aren't Domonic Stephens and his ilk. He's a front man; presenting the bank's PR to the media. The real economists; those that do the work, give their views to management. And if you look at the recent moves across all the levels of lending over the last years-odd, management know what's coming, and are getting ready for it....
Exactly. It should make no difference what the mortgage rate is, if the banks are doing their job properly and assessing borrowers under responsible lending laws which require mortgages to be stress tested for affordability at 7%. A borrower who wouldnt qualify for a mortgage at 4% shouldnt be getting one at 3.95% either.
Just for some context, here is what 5 Australian economists predicted 12 months ago:
https://www.domain.com.au/news/what-now-for-sydney-property-prices-five…
https://www.domain.com.au/news/melbourne-property-prices-will-they-cont…
The WORST case prediction they had for Sydney was a 2% drop in price (its 400% more) and prices to be flat in Melbourne.
No he must be wrong, expert commentators on Interest.co keep advising me that house prices will sit flat, and then start rising again from 2020/2021 because the housing market follows a sine wave curve, also known as an oscillation, and that's how it always has been and will be.
Westpac's Chief Economist wouldn't have a clue if they're going to increase interest rates in the near future.
*2021/22
Has someone said the housing market follows a sine wave? Personally I've said that the economy and housing market are cyclical. Do you disagree?
This doesn't look like a sine wave to me - https://www.interest.co.nz/charts/real-estate/median-price-reinz
Adrian Orr has already told us what is happening to interest rates in the near future.
I was referring to the house price growth chart. Obviously a little more squiggly than a sine wave.
https://www.interest.co.nz/charts/real-estate/median-house-price-growth
By the way Orr works for the reserve bank. They don’t set the interest rates on mortgages. That’s like saying Taxis won’t put their rates up because Caltex foresee petrol prices to remain fixed for the near future.
Yes, that is a bit more sine-like. One drawn by a toddler though. As an aside, looking at that graph for Auckland I find it really interesting how the DGMs think that despite the historical trend, that red line is all of a sudden going to totally lose the plot and start doing something completely different now. Because China.
Orr doesn’t set the bank’s interest rates, but the OCR is a major determinant of retail bank’s rates. Personally I’m inclined to give a lot of weight to what the Governor of RBNZ and the retail bank Chief Economists say is going to happen to interest rates. You say Orr works for RBNZ, but ide say he runs RBNZ given that for the time being he has sole discretion on what the OCR is.
That's not a sine wave, that's an arctangent.
http://images.tutorvista.com/cms/images/113/arctan.png
I hope you're not an Engineer (:
Today's headline, following on from yesterday's headline [November 2018 report, REINZ], suggests that the housing market is far from being in a state of doom and gloom....... though, given the above comments, one could be forgiven for thinking otherwise.
A pity this blog exhibits such a high degree of negative bias. It's hardly representative - and, thus, risks misleading people.
TTP
Resident spruikers getting desperate to muzzle those who air the truth? Next you'll be suggesting interest.co.nz sign up process is flawed too......
This forum reflects a random cross section of the population. As you are clearly the minority, respect the changing winds, it will likely shield you from unthinkable losses.
As Nic Johnson previously suggested, Eco-Bird was in fact the rare and elusive Oozlum Bird. Eco-Bird was startled by the horrific auction clearance rates and flew up his own backside.
Normally you can click on someone's profile and it takes you to their history page. But not Eco-Bird, it's like he never even existed.
The Pareto Distribution "Law" was originally and still predominantly an observation of wealth distribution....ie that 20% of the population own 80% of the wealth, so it is perhaps more than a little perverse that you are using that rule to refer to what both of you (Carlos and TTP) insist is the "haves" and the "have nots".
BW
What are you excited & confident about ?
The signals we see about is ?
If I was a gambler I wouldn’t bet that Auckland house prices will decline too much
I see people here talking Sydney & Melbourne but these are totally different markets
Auckland remains the dominant preeminent NZ City and that’s not changing
ChCh & Wellington are both miles behind in every aspect as nice as they both are especially Wellington which is a delightful little town.
You realise Sydney and Melbourne are the preeminent cities of Australia, and they're congested to the extent that the Federal government in entertaining the idea of forcing migrants to live in regional Australia for up to five years ... yet house prices continue to fall.
Every market has down turns - the rental market is no different. You'll feel better if you stop thinking of it as doom and gloom, and start thinking of it as an inevitable cycle.
I'm sure a savvy investor such as yourself will be well positioned able to weather the next downturn, whenever it may be.
They aren't going stay 'this low' - they are going lower.
As assets of all kinds are sold - property amongst them - Worldwide - and all other tangible alternatives look just as bad, cash is going to swamp the bond markets - and rates, are heading down as a result.
I can see what you are getting at, but where are the buyers (and their money) going to come from? And will the firesale prices be enough to pay back the associated debts like mortgages?
So by your theory is should just go and short everything and wait? .. S&P 500, REITs and Bonds?
ASB. But from speaking to colleagues they are all doing it. TSB is apparently actually offering 3.9% if you ask nicely. ANZ is certainly doing it. My mortgage broker said it was a good move, but he'll then get me a 8.5k cash back if I now move to another bank at any point I like. Basically my interest cost just became 8% cheaper. My rental is now washing its face nicely - just wait until the rent goes up next year thanks to the healthy homes bill!
Not sure about that. Mortgage rates plummeting, banks desperate, LVRs about to come off, rents surging as landlords switch to AirBNB. A lot of tenants will soon be wondering why they are paying more rent than an equivalent mortgage as the landlord raises rent after been told he must install four heat pumps in the property and the tradesmen have hiked their prices by 150%
Its access to credit already at 70 year lows that's keeping our overvalued market afloat. Why burn through valuable stimulus (interest rate margin) needed in the event of a debt crunch? Speaks volumes about the current state of things. Where complacency reigns, the unseen cliff comes ever closer. Fear not, all is not lost. Westpac say houses will resume falling in 2020, resident spruikers say they will rise in 2021! So that's just one year of falling house prices. The Median Auckland house price will be valued valued twice that of Sydney before ya know it. (Extreme sarcasm)
Up, down and sideways I’ve heard it all. Fact remains that Chinese stopped buying in Auckland 18 months ago now and the market hasn’t collapsed.
By the time interest rates rise in 2020 those who bought in say 2016 , if they’re sensible, would have been paying down their mortgage and will be just fine.
Sensible being the key word.. Sure, well financed, securely employed might be able to keep up the mortgage payments...but there is a bucket load over geared under financed (not to mention very dodgy income declarations to banks) who are about to be exposed.
They will drag all prices down...making those repaying mortgages on depreciating assets feel somewhat ill.
Hi Delboy
How do you explain the 6.2% of purchases made by overseas buyers in Q1. Some areas seeing nearly 20% foreign purchasing. Here's some stats from Stats NZ
https://www.stats.govt.nz/news/just-over-3-percent-of-home-transfers-go…
And some suburbs have stayed at 20% up until the day of the ban!
Agent TTP, like yourself, Spin Bindi, in support of the obvious narrative, used Stats NZ figures, while knowing full well they were a gross underestimation. There was no disclaimer present pointing to solid evidence published in other mediums that clearly showed higher rates of foreign buying. ASB Bank are in the best position to know and it's in the best interests of REINZ to downplay it ; https://www.interest.co.nz/news/94482/asb-data-shows-actual-number-home…
Only an Agent would try and fool people all of the time.
Never would I have thought that the housing market was so liquid that short term fluctuations would matter or be of any concern. The long term trend line continues to point downwards and we continue to be one of the most highly over valued markets in the world. Nothing has changed....
PatrickW - you are correct and anyone and everyone knows that and may be this is the reason - Last ditch effort to stop or delay the fall or get as much out as possible before it is totally dead (dead for some years to come as will rise again as it has been happening over peiod of time but defeniately not in near future)
Yvil, please now feel free to change the meaning of long term to 10, 20 or even 30 years after you read this (or not). A long term uptrend means diddly squat to victims. Entire generations of wealth and livelihoods can be wiped out. I think the next downturn (debt crisis) is looking increasing like an "L" with traditional interest rate stimulus proving more impotent against a massive tide of global deleveraging. Take interest rates too far below zero and risk people withdrawing it from banks.
I challenge any Spruiker that wants to stick their neck out and say it will never happen to supply sound arguments as to where monetary stimulus goes now we are near ground zero already.
Astrologers,fortune-tellers,palmists,soothsayers,tarot card-readers.They all have one thing in common.Claim to be able to predict just about everything.EXCEPT when the next sucker to pay for their meal ticket will come along to swallow their bullshit.
Now we can lump together bank economists in this esteemed group.
Depends - are you addicted to debt? if so, you'll agree with the narrative (from a public perspective, they have to become sales reps or they're out of a job).
Would love to hear a bank economists 'off the record' views on the economy and compare it to what they say when wearing the banks badge.
I'm still picking interest rate rises Q1 2019. I guess if it doesn't happen, then I was wrong and therefore there is nothing wrong with the global economy either and house prices will continue to slowly rise. What I cannot see happening is crashing interest rates and the housing market crashing at the same time.
This from Westpac 2014
"For some time the Westpac economics team has been forecasting a modest resurgence of house price inflation this year, before the market turns more decisively negative later next year," Stephens said
Wrong
https://www.interest.co.nz/property/71467/westpac-thinks-house-prices-w…
This from Nzdan 2018
"Well aren’t you a big know it all? I think they were talking about Christchurch.”
Wrong
https://www.interest.co.nz/property/96898/westpacs-chief-economist-says…
Oh in this article where In response to the picture of a baby I said:
“It's strikingly similar to your profile pic, except the elongated droplet hanging from your lip is not saliva or mucus.“
Nobody in that thread was talking about semen so I don’t know where you got the idea from?
https://www.interest.co.nz/property/95752/bayleys-sold-50-their-latest-…
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