The BNZ's Chief Economist Mike Jones is warning inflation adjusted house prices could fall back to 2016 levels by the middle of next year.
But he also says the market is clouded in uncertainty.
"The lengthening conflict in the Middle East has prompted a rework in our macro forecasts," Jones says in the bank's latest Property Pulse report.
"We're now looking at a weaker economy, higher inflation, a delayed labour market recovery and slightly higher mortgage rates," the says.
"Rising net migration will work in the other direction, but the implications for housing demand are clearly negative overall.
"We've consequently pruned our house price inflation projection to flat for this calendar year, from +2.0% previously," says Jones.
However, Jones also acknowledges the difficulties in making forecasts given current market uncertainties.
"It's a wild time to be making any sort of forecast."
"Ours may yet prove optimistic," he says.
"But if they're in the ballpark, spiking inflation would still see real or inflation adjusted house prices fall through to about mid-2027.
"That would return them to late 2016 levels, 30% below their 2021 peak," Jones says.
On the mortgage interest rate front, BNZ's economists expect the Reserve Bank to hike the Official Cash Rate twice in the second half of this year.
"We now see inflation rising to a peak of 4.3% year-on-year in the second quarter, and remaining above 3% for the rest of the year."
"The oil price shock is hoped and assumed by most to be temporary, but such is the magnitude of the inflation shock and likely pressure on medium term inflation, that we think the Reserve Bank will have to lift the OCR, and potentially rapidly, later in the year.
"We continue to forecast a a 25 basis points hike in September and another in December.
"Based on our OCR outlook, we might expect floating rates to start rising around the third quarter, finishing the year in a higher 6.0% to 6.5% range," says Jones.
9 Comments
Ahhhhhaaaaa!
Its actually 2015 pricing, thats comming back to the NZ home selling market......but lets not quibble on a year or two.
Spruikers be pukers!
I wish someone had recorded your reaction opening the website this morning & seeing that headline 🥳🎉🎊👯🤣🤣
They have been following the Interest Team and the deep researching efforts of the Gecko.
It is all unfolding very positively, as we speak. Enjoy NZ!
Love it! Have a great Easter weekend Gecko 🍫🍻
Fantastic news for the country. A gentle slide towards affordability is the sweet spot.
"But if they're in the ballpark, spiking inflation would still see real or inflation adjusted house prices fall through to about mid-2027.
"That would return them to late 2016 levels, 30% below their 2021 peak," Jones says.
Real house prices already down cira 30%
https://fred.stlouisfed.org/series/QNZR628BIS
And the next bottom could actually be 2008 levels (in real terms) ie GFC levels which were already a bubble in real terms (and then we inflated another bubble on top of a bubble with our monetary policy and mania towards housing).
Another few years of 5% inflation with interest rates 7-10% and house prices dropping another 10-20% (in nominal terms) could see this happen.
A certainty - no...a possibility, absolutely.
Yes, but having that occurs via inflation just bails out banks and speculords. It absolutely hammers pensioners, govt employees, unemployed and the disabled.
Reduction needs to be in real terms.
"The oil price shock is hoped and assumed by most to be temporary, but such is the magnitude of the inflation shock and likely pressure on medium term inflation, that we think the Reserve Bank will have to lift the OCR, and potentially rapidly, later in the year.
My argument is to act early so you don't need to do the rapid thing later - you can always cut again during the year if the inflation is indeed transitory, but you can't stop price spiral inflation easily if you have decided to spend 6 months ignoring the early signs (aka) smoke because you don' want to fight a fire. Best to put some water on the smoke early and then dry things off later, than to pretend the smoke isn't there and end up fighting a big fire (and dealing with the resulting damage).
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