Westpac economists stick with forecast of 7% house price growth next year

Property

Westpac economists reiterate forecast of 7% house price inflation next year but admit it's far from certain

13th Aug 19, 2:20pm by Greg Ninness

Westpac's economists are sticking by their forecast that house price inflation will accelerate to 7% next year, but only just.

In the latest Home Truths newsletter Westpac's Chief Economist Dominick Stephens conceded the forecast was a bullish one.

"We have encountered a great deal of scepticism about that forecast - most other economists expect the current low rate of house price inflation to persist," he said.

Stephens said recent sales volume data was "choppy and hard to interpret" and it would probably be a few months before a clear trend emerged, but tentative signs of improving sales levels in Auckland and Canterbury supported Westpac's view of a rising market, as did the recent fall in the total number of homes available for sale on Realestate.co.nz, but he said it was also too early to call that a trend.

And as for prices, Stephens described the REINZ's July selling price and days-to-sell figures as "...definitely weak data."

Taking all of those factors into account, Stephens is sticking with the 7% housing price growth forecast for next year, but his view is far from unequivocal.

"We think there are straws in the wind supporting our view that the housing market is going to pick up, so we are sticking to our forecast 7% house price inflation next year," he said.

"But the evidence is by no means conclusive - more data will be required before we can draw any real conclusions about which way the market is heading."

The full Westpac Home Truths newsletter is available here.

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45 Comments

by Mrs The Point | 13th Aug 19, 2:26pm 1565663198

Wishful thinking? Seems pretty optimistic to me.
Oh I see it is based on "straws in the wind".

by delboy | 13th Aug 19, 2:33pm 1565663580

It’ll be “green shoots” next month.

by CourtJester | 13th Aug 19, 2:55pm 1565664915

Look at all those bulls grazing on greener pastures!

by tothepoint - d… | 13th Aug 19, 3:01pm 1565665296

Westpac is not the only institution/commentator forecasting significant house price growth over the next 12 months or so........

TTP

by Advisor | 13th Aug 19, 3:19pm 1565666384

When in the history of modern economics has the entire financial system got something wrong? Oh, just 11 years ago!

by GGP | 13th Aug 19, 3:37pm 1565667437

Westpac concedes it is in the minority in this case, though. From the article: ""We have encountered a great deal of scepticism about that forecast - most other economists expect the current low rate of house price inflation to persist," he said."

by Fritz | 13th Aug 19, 5:31pm 1565674263

TTP you are predicting flatness right? Or has that changed again?

by Advisor | 13th Aug 19, 3:17pm 1565666265

The optimism seems an overkill, given job creation and economic activity across major industries has slowed down dramatically.

by Nzdan | 13th Aug 19, 2:44pm 1565664293

We're pretty confident that house prices will increase by 7% next year, but the evidence is by no means conclusive
(in other words non-existent)

More data will be required before we can draw any real conclusions about which way the market is heading
(Predictions don't work with the luxury of hindsight/sunset clauses I'm afraid. You make a prediction and own it).

by J.C. | 13th Aug 19, 2:52pm 1565664751

Yes. It's a forecast sprinkled with modifiers.

by Fritz | 13th Aug 19, 5:37pm 1565674667

Sounds like a lot of ass covering.
Question - if house prices crashed next year, and FHBs bought now with mortgages from Westpac, at least partly on the basis of bullish predictions like Zorro's, could Westpac be held liable?
I assume his commentaries have got fine print to protect their backsides. In fact they do, fine print at the end:

'This material contains general commentary, and market colour. The material does not constitute investment advice,
blah blah blah......'

At the very least though, it would be a really awful look wouldn't it?

by Nzdan | 13th Aug 19, 6:39pm 1565678346

"Buy shares in my company and you're guaranteed to double your money in 18 months".

Note: This material contains general commentary, and market colour. The material does not constitute investment advice.

by rastus1 | 13th Aug 19, 2:46pm 1565664382

"It will accelerate to 7% next year...but only just". I think the sun will rise tomorrow, but only just and then I'm driving to Auckland, but only just. And when i get there, I'll go for lunch, but only just.

Just another day as a bank economist. But only just.

by J.C. | 13th Aug 19, 4:05pm 1565669156

The lower limit of the 7-10 year theory. That fits into the mainstream thinking about how house prices behave and is nice use of media to keep spirits high (important when your business model relies on the attitudes and behavior of the public). And in the case where the forecast doesn't match the actual outcome, there are all those other known unknowns and unknown unknowns that can easily explain when or if the forecast is not realized.

by CourtJester | 13th Aug 19, 2:53pm 1565664780

"recent sales volume data was 'choppy and hard to interpret'"
Indeed, hard to interpret with a "house prices only go up" mindset.

by mikekirk29 | 13th Aug 19, 5:40pm 1565674823

Data series of sales showing stabilising of decline at 15-18% drop in Auckland is not really sufficient to be doing a uk chancellor a la 1990 “green shoots of recovery” meme. Esp lame when series is in fact still deteriorating in Christchurch and Wellington

by Voiceofreason | 13th Aug 19, 3:02pm 1565665344

The bank is really counting on it being 7% and I’m not allowed to say it’s likely to be less.

by Foreign buyer | 13th Aug 19, 6:24pm 1565677450

Mr Economist would you bet your house on that 7% figure (or even a 1% figure). Somehow I doubt it, but you are hoping your words get some poor FHB to bet their life on it by taking out a ridiculously massive mortgage. Please stop spruiking this nonsense and accept reality. Every country in the world is now talking of the enormous looming recession.... except little old NZ.... because we are special?

by NorthernLights | 15th Aug 19, 1:27pm 1565832439

ForeignBuyer is right this is just bank spruiking the housing market to keep mortgage growth rolling along
Nice try Westpac

by bw | 13th Aug 19, 3:34pm 1565667264

Any further asset appreciation from here puts New Zealand at....well...I'll just repeat an article from earlier this years :

" NZ's household debt levels are reaching terrifying heights"
https://www.noted.co.nz/money/property/household-debt-nz-levels-reachin…

In 2009 outstanding mortgage debt in this country stood at about $165 billion. 10 years later - today - household debt stands at $265 billion.
What could we; should we, have done with that $100 billion of debt that we have taken on as a Nation in the last decade that has otherwise gone into pointless asset appreciation? I could list schools; police; hospitals - even lower taxes! But I guess we all have our priorities, as does Mr Stephens....

by Believer1980 | 13th Aug 19, 4:00pm 1565668855

Building new houses is good economic activity and is real economic achievement. I understand that inflating the price of existing stock of houses is not desirable. And I know people contribute this to credit availability. Bank recklessly creating credit that ends up in house prices. But, I also see the very high construction costs (and I mean construction costs in a very broad way including site preparation and infrastructure to finishing produces put in a house) in NZ (for really sub-par quality for the price you pay) as a huge contributor to this issue. Land prices are about 1/3 (maybe except for Auckland, where land prices are higher) of total cost and sure that can reduce (logically to the cost of developing a new section and adding infrastructure on it). But I doubt that the remaining 2/3 reduce by much.
So while the market can crash, it does not mean a flood of houses will appear in the market and housing will all of sudden become affordable. the owner-occupiers will sit tight, the investors will continue to squeeze as much rent from the renting population (and government will need to increase welfare so less people end up needing state housing). Prices will be low (can be significantly lower) but stock will be very limited. Stagnation. Can be long stagnation. But it does not improve anything.
NZ does need a better system to build houses. It is a dream that change in credit availability alone will reduce house prices. No laborer will accept under $21 hour.

by Pietro | 14th Aug 19, 7:53am 1565726023

It’s all about the cost servicing that debt. We are trapped in a less than virtuous circle of asset bubbles and stupidly low interest rates.

by Pergi la | 13th Aug 19, 3:34pm 1565667280

Bank economists know nothing. Prior to ditching private banking because of the fees and spin, I would get a regular visit from one of the bank economists at my home to keep me informed of what’s going on. He would have a different story or “out look” every time but always an underlying sales pitch

by Te Kooti | 13th Aug 19, 3:53pm 1565668380

I'm pretty sure bank economists don't do house calls, unless you're worth >$100m that is.

by rastus1 | 13th Aug 19, 3:57pm 1565668662

..or a particularly hot blonde...or bloke

by Pergi la | 14th Aug 19, 12:26am 1565699199

They actually travel the whole country to selected clients. In my case our holiday home in the southern lakes. Your private bank manager rolls them out as a sales tool. But I think it is also a junket for both manager and economists

by Henry_Tull | 13th Aug 19, 3:48pm 1565668114

How negative do they expect interest rates to go?

by Adam B NZ | 13th Aug 19, 4:32pm 1565670767

Given we are pretty much in a Global recession, can you really see house prices rising in that environment???

by Due Diligence | 14th Aug 19, 5:21am 1565716865

Adam, we really aren't "pretty much in a global recession". The standard for a recession is two consecutive quarters of negative growth. We simply aren't seeing that sort of pattern with any significant number of countries experiencing that globally. Annual global GDP growth rate is about 3% currently.

by Adam B NZ | 14th Aug 19, 7:02am 1565722922

Here is 53 pages of Global economic data that would say otherwise... All depends on how you measure it and all the signs are there that one has started. https://fingfx.thomsonreuters.com/gfx/ce/7/5816/5799/GLOBAL%20ECONOMY%2…

by Due Diligence | 14th Aug 19, 7:28am 1565724535

I can't see anything that indicates global recession in these 53 pages of graphs. Nevertheless, recession is almost universally defined in terms of GDP growth - two or more consecutive negative quarters equals recession. Perhaps you meant there are some indicators that suggest there may well be a "global recession" at some point at the future?

by mikekirk29 | 14th Aug 19, 9:01am 1565730072

Technically of course you are correct on definition of recession.
However, growth is shrinking almost everywhere, as is trade volume.
Australia and China are looking v dodgy on growth and financial trouble, as consumer is flaked out.
EU growth has been pathetic of less than 2% for 18m.
NZ growth forecast by treasury in 2017 was (laughably) 4.5% pa. Currently it is 2.4% and falling each quarter.
Recession follows about 9 months after its causes. So watch out in Oct-November

by stuart786786 | 13th Aug 19, 5:19pm 1565673571

False Propoganda ....Vested News .....

What has to happen - will happen. If such false propganda could help or prevent, will never ever have recession.

by SmoKey | 13th Aug 19, 5:37pm 1565674642

Any prediction from Westpac on what Fonterra share price would be next August ?

by imhenry | 14th Aug 19, 7:59am 1565726381

Buy now price can only go up!!!

by Pathos | 13th Aug 19, 7:22pm 1565680936

What's that smell.....?
Smells like cows or something. Ah, I know what it is!
It's b/s!!

by theglc | 13th Aug 19, 8:56pm 1565686583

"We think there are straws in the wind supporting our view..."

Doesn't sound very convincing

by b21 | 13th Aug 19, 10:22pm 1565691722

Mr Stephens needs to justify his salary at Westpac and he probably needs deliver periodic reports and predictions, however a prediction is worth just as much as how accurate it is and stating its weakness completely invalidates it.

by Houseworks | 13th Aug 19, 10:38pm 1565692737

The economists often get their house price forecasts quite wrong usually to the underside from the ones I've seen over the years.

by theglc | 14th Aug 19, 9:16am 1565731019

So westpac are picking 7% growth in the property market in the next year, you think thats a bit light but the RBNZ has slashed their price growth expectation to 1.5% this year and 3.1% next year...

https://www.interest.co.nz/property/101097/its-latest-monetary-policy-s…

Now who should I believe????

by Market Interest | 14th Aug 19, 10:25am 1565735132

The RBNZ immediately acted and dropped the OCR - at an unusually large decrement - so they've put their money where their mouth is.

Westpac has done...well...nothing, except jawboning. And expressing a fair amount of scepticism in their own prediction.

I know which way I'd lean...

by HouseHunter | 14th Aug 19, 10:37am 1565735859

by Kezza R | 15th Aug 19, 9:01am 1565816488

Glonal economy slowing, rexession fears, US & NZ elections next year which causes stagnation, Hong Kong, Brixeit, Argentina, Trade wars and Westpac thinks the longest bull run in history is going to get even bigger??? 'Our future profits are looking shakey, we need to spark up the market to improve them' is what I hear.
Years ago Westpac forced my parents to sell half of their orchard. I argued at the time to let them carry on as prices would increase. They stated that their predictions did not show this and half of the property was sold. Two years later the new owner sold it for double the amount he paid.

by Kezza R | 15th Aug 19, 12:25pm 1565828734

Pump and dump!

by South_Island_Simon | 15th Aug 19, 2:01pm 1565834491

Never once did the pie man make any kind of suggestion that perhaps not buying pies would be wise.