The Reserve Bank's admitting to being surprised that house prices haven't been increasing as they expected, while also saying that only about half of the impact of the interest rate cuts made since last year has so far been transmitted through into the economy.
The RBNZ's now, in fact, forecasting that house prices will fall 0.3% for the full 2025 calendar year, after quite a big reversal since its last issued forecasts.
The new forecast is contained in the data accompanying the RBNZ's latest Monetary Policy Statement (MPS).
In the previous MPS, issued in May the RBNZ had forecast a 3.5% rise for 2025, while earlier forecasts - at the end of last year were for just over 7%.
The RBNZ sees prices start to rise again next year, up 3.9% by the end of 2026 and 5.0% by the end of 2027.
At the media conference on Wednesday, after the RBNZ had lowered the Official Cash Rate (OCR) to 3.0% and signalled it may go to 2.5% by the end of the year, RBNZ chief economist Paul Conway said "normally we would expect house prices to be increasing a bit more at this point in the cycle but they are not. We are not expecting them to increase a great deal over the coming 18 months".
"When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?"
Assistant Governor Karen Silk said of the 250 points of cutting that have been done to the OCR [taking it down from 5.5% as of last August to 3.00% now] "we’ve probably seen 50% of that transmit through, so, there’s another 50% still to go.
"So, there’s certainly still more stimulation still to come that will support freeing up of disposable income at the household level and eventually feed into house prices and residential construction as a consequence of that as well.”
In terms of the slow transmission of the lower interest rates, Silk said "there’s a couple of things that we would probably call out".
"The first of those is consumer behaviour itself. If we think about what’s actually happening in terms of refixing mortgage rates, people have opted to stay in shorter terms, on demand, or up to six months at much higher rates in the belief that they would come lower before they started to move out [their terms].
"So, as that happens it means that your transmission is actually slower than you would anticipate.
"That’s changing. So, what we are now seeing is households move to refix for longer terms at much lower rates and that’s why we see the average stock rate coming down over the next 12 months.
"So, if we saw it peak at 6.4%. It’s probably running about 5.6% now and it will be in 12 months time slightly below 5%. So, there’s that aspect of it coming through."
Silk said the second aspect to the slowness of transmission was what's happening with disposable income for households.
"So, what’s happening with electricity prices, what’s happening with rates, what’s happening with food prices. So you are getting a little more contraction there. So, money is going from discretionary spending into maintaining what they would regard as essential requirements that they need to do. So, there’s a little bit of that going on as well.”
Governor Christian Hawkesby noted that monetary policy "lags" are "long and variable".
“There’s a lot of uncertainty about how quickly these things will work through.
"That’s what gives us the confidence that when we say monetary policy works, we say that interest rates low or high do have an impact and you’ve just got to have confidence it will work its way through.
"The challenge is there will be other things that go on along the way and that’s where we need to constantly re-adjust or recalibrate about whether we have done enough or we need to do more and particularly in the zone that we are in at the moment where we’ve done a lot in a rapid period - now we start feeling our way."
28 Comments
Anyone sick of hearing the RBNZ use the word uncertainty?
I'm not sure (is that better ?)
Perfect, a one page MPS with that phrase would sum it up.
It looks like the median Interest commentator is far better at forecasting house prices than the RBNZ.
Only when prices are going down
Rents, population, house price and economy all in decline. Rates, cost of food, departure to Australia, national debt, job losses, withdrawn listing, and receivership's all up.
Tell me again why would house prices would rise?
I'd buy another investment property tomorrow at the right price, but even I will concede the dynamics of residential property investment in NZ are not that appealing. Rents are flatlining and the big unknowns are insurance and rates. From an afterthought a decade ago, they are now a $250 p/w expense and that just destroys the numbers.
Even with price falls and lower mortgage rates, you'll be doing very well to find something at breakeven. You really would be much better off putting cash into shares at the moment.
At the right price a lot of things make sense. That is indeed the crux.
forecasting that house prices will fall 0.3% for the full 2025
like anyone can get a decimal right in a housing forecast.
I would prefer a rang like 0-5%, 5%-8% etc
but the pointy heads love there spreadsheets
"When you look at household consumption it is very highly correlated with changes in what’s going on in the housing market, so, there’s a bit of an open question there. Can the New Zealand economy grow without that sort of wealth effect coming through from housing?"
Isn't that the question that we pay Paul and the army of pointy heads to answer?
Or maybe he doesn't want to say "yes, it's all about the Ponzi."
The Reserve Bank's increased its house price forecast for next year and now sees prices rising by just over 7% in 2025. (link)
Their predictions are reflecting their performance, and not ageing well. Turns out they tried goading the public into confidence and greater debt, but surprise surprise, the public are not as gullible as they assumed.
Central banks are all about influencing behavior, yet the RBNZ doesn't hire any behavioral economists or even actively measure behaviors, or more importantly, changes in behavior over time. People scoff at REAs and the way they position themselves as market expert and observers. In reality, the collective understanding of those REAs is invaluable to really understand what's going on in the all-important propadee market. And why's that? They have skin in the game and are fighting for their livelihoods. Anyone who has read the work of Taleb should understand this through the illustration of Fat Tony vs the finance traders and experts.
While RE agents are usually consummate bs artists, it should be remembered that "they only eat what they kill" ie income 100% commission.
Usually it's the property owners and potential buyers who need the reality checks, not the agents.
REAs do have the pulse of what is happening.
But they choose to say something else.
Don't forget they are paid by the seller. Buyer beware covers it.
It's no wonder this downturn has become self reinforcing. Increasing employment uncertainty whilst a borrowers biggest asset is depreciating whilst interest is being paid whilst being forced to digest rocketing Council rates, insurance and food for starters. The answer lies over time as our productivity improves, cost of living inflation remains moderate or falls, our collective incomes increase and a miracle shift in focus away from selling ever appreciating ATM purposed housing to one and other takes hold.
An increasing number of frustrated and short sighted Portfolio Lords are operating in an arena of increasing surplus stock.
I used to mention about the synergistic relationship between the Ponzi, business activity, and prices (which can be different from inflation) at the water coolers. This synergy happens on the way up and on the way down. Common reaction response is 'yeah...nah'. I think the reason for that response is the following:
1. People generally believe the Ponzi's dynamics are thought to be independent of the other sectors of the economy or the Ponzi's influence on the economy is overstated
2. People are conditioned to believe that the RBNZ can manage mkts like a puppet on a string. Now there is plenty of evidence that suggests that this may be true. But there are outliers, like Japan. And of course, people think that for Aotearoa to go through 20+ years of deflation is impossible. That cannot be disputed. Nevertheless, I believe there is a point where the individual is financially 'tapped out' for the machine to break down- it probably requires 4 out of 6 standard deviations.
Typically RBNZ actions don't fully flow through the economy until a year later
Yes but that's assuming attitudes and behaviors are constant. If I do repeat experiment with rats and cheese to open a trap door, I might base my assumptions on the past 10 experiments. Those assumptions become reinforced. But what if the rats don't respond in the next 2-3 experiments? Their behavior changes and they don't or can't take the bait.
Of course there are better examples than this. But the point is the same - there is a time when the rats don't respond as you expect or want. The RBNZ and the ruling elite are terrified of this happening.
Just bought into the coffee ponzi and here to chat about the property ponzi using my phone ponzi.
If you keep that up, you'll end up with a ponzi ponzi.
Just bought into the coffee ponzi and here to chat about the property ponzi using my phone ponzi.
Robusta bean prices up 200% in 10 years while Arabica up almost 300%.
Some of those price increases can be attributed to monetary expansion but commercial banks will not be creating credit for the hoi polloi to buy coffee beans.
Therefore, the Ponzi dynamic doesn't really apply to coffee.
Phone ponzi is the one that has had the most price erosion.
...while also saying that only about half of the impact of the interest rate cuts made since last year has so far been transmitted through into the economy.
OK so where's the corresponding economic growth?
So, money is going from discretionary spending into maintaining what they would regard as essential requirements that they need to do. So, there’s a little bit of that going on as well.”
No, there's A LOT of that going on.
No, there's A LOT of that going on.
I can simplify what they're trying to say: greater share of income / wallet is being allocated to the lowest rung on the hierarchy of needs.
Many are concerned by how long this recession has lasted, watching friends at work made redundant and watching known companies forced into liquidation. All the time the Government and the Spruikers have told us all is well just another quarter or half year and the small seeds will start to grow.
Well peoples patience has run out and even those with money are non-believers of the repetitive but never appearing green shoots news.
I think the RBNZ should have gone 50 to signal just how bad things actually are, 1/3 on the decision board felt this way and just one more and it would be split decision.
Things are much more serious then we have been told by our leaders, who need positivity to get re-elected.
People realize this disconnect from what's said to what's observed, and the animal spirits are hiding , waiting for the sun to come back out. The rulers never tell the truth people, hell the Iron Lady said it will all come right and it did not.
Personally I think even with 2 year mortgages at 4.25% things are going to feel very very flat while people pay down debt.
This recession will keep rumbling on as the NZ property market will not re alight until people believe it cannot fall further.
Indeed. Debt they should have smashed when rates were 2% vs loading up like junkies as they did. After all detox sucks...
Those that played it smart (deleted debt, sold at peak etc) are sitting on vulture funds waiting for the mortgagee sales to really get going.
Kaaaark.
I think that there's a few pockets of housing ok in the South Island. I've been watching a few areas in around ChCh closely for a few months & think prices for good family homes are holding up.
In some cases even when questions: 42 Aylsham Casebrook sold for $1.2M this morning (cv $1.11M): the building report indicated it needed a renovation/redecoration & I thought that the eq repairs were rough. A 1/4 acre section though.
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