ASB economists say it is the end of an era for house price gains.
Their latest Economic Note on the house price outlook says there was an almost sixfold increase in house prices over the 30 years prior to 2020.
That averaged out at about 6% growth a year and was above the average 5% annual growth in GDP over the same period. However, the report says the going has been tough since prices peaked in 2021, with prices generally "floundering."
"Since peaking in 2021, the going has been tough," the report says.
"NZ house prices are currently about 15% below historic peaks, or just under 30% down in inflation adjusted terms, albeit with acute regional differences," ASB's economists say.
They note a number of factors have affected the market, including cyclical weakness, low net immigration, recent increases in borrowing costs, pronounced uncertainty and high existing dwelling listings.
However ASB says there are also three key structural developments affecting house prices:
- "Potential end to the trend of easing mortgage interest rates that will reduce the likelihood of a borrowing-led increase in house prices."
- "Low net immigration and a slowing natural increase have both acted to slow population growth. Absent a strong and pronounced lift in net immigration, it is difficult to foresee a prolonged lift in population growth."
- "Changes to housing supply and increased intensification have shifted the effective housing supply curve outwards, providing would be buyers with more choice."
The report says the above factors may also help explain why the housing market is yet to take off despite sizeable post-2021 house price falls significantly improving housing affordability.
It says that while the house price outlook is "incredibly uncertain," the above factors are expected to "contribute to a more moderate house price recovery in the coming years, with outsized capital gains looking to be harder to achieve than in the past."
The report forecasts flat house prices for this year, with a moderate increase of around 3.5% in 2027 and future increases beyond that to be broadly inline with nominal income growth of about 5%.
"It may not be until late 2029 that nationwide house prices approach late 2021 peaks on a nominal basis," the report concludes.
ASB is New Zealand's second biggest housing lender with total loans of $84 billion as of June 30.
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