Westpac's chief economist says recent falls in mortgage rates will boost house prices but warns of rising rates and falling prices from 2020

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:

PDF iconNZ_Home_Truths_November_2018.pdf

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102 Comments

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15

If there is one thing Ive learnt from watching the Sydney property market is these economists are very good at getting it wrong.

Masher - lol. or maybe they have a very serious agenda.

I know right. Whos the main benefactor?

How on earth have so many been manipulated to believe that an economist from a bank is the most relevant, accurate and trustworthy source of information?

Its like taking mechanical advice from the used car salesman.

Not isolated to Sydney e con omists
Beautiful City Sydney but like Auckland it’s value quotient is overblown
Where’s Zach & DubleDzz for fun ?

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10

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.

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12

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....

Actually, the real economists are the markets economists. They are the ones with their fingers on the pulse, who live and die on their forecasts. They do have to defer to the house view however, which is set by the Chief Economist.

Can new buyers access these rates? I had the impression new buyers were being stress tested at 7% anyway...which leaves the market to be driven by investors (who have told me recently they've never found it harder to get financing for additional houses).

A number of people are waiting the market out

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-conti...

The WORST case prediction they had for Sydney was a 2% drop in price (its 400% more) and prices to be flat in Melbourne.

I don't know about Australia, but I genuinely rate very few economists in NZ highly at all.
Maybe the one exception is Cameron Bagrie.

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

This blog follows the 80/20 rule, 80% of the people here are DGM's.

Hi Carlos,

Sadly, I suspect your estimate is about right.

80% of people here being DGM is alarmingly high.

I wonder if Greg Ninness would consider "disabling" a few of the worst offenders.......

A good purge (or exorcism) once in a while can be very healthy.

TTP

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10

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.

Hi R-P,

You write, "This forum reflects a random cross section of the population."

What rubbish!

For a start, this forum doesn't include people without on-line access!

TTP

Agent TTP, there are many agents out there crying for help. You'll just have to wait in line. My apologies, Prisoners don't have online access. There you go, found the cause of your 80/20 problem! ;-)

might not include people who drive a horse and cart either!!!! Or one eyed purple people eaters!!!!!!

What a ridiculous comment!

straws & grasping come to mind.

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14

Alarmingly high?!?

Didn't 80% of Barfoot auctions in Auckland not sell in the weekend?

Yesterday.. and it was only 78.57% that didn't sell, what are you, a doom and gloom merchant? :D

Come on TTP, you guys are as bad as each other. Requesting bans for posting repetitive, one-sided comments seems like dangerous ground for you.

When I first signed up to this website TTP used to be tolerable and civil. I think ever since Eco-Bird has left, TTP has decided to fill his obnoxious & autistic shoes. I wonder if Eco-Bird was one of TTP's smurf accounts.

Nzdan... wait wut? Eco-Bird left? What prompted that? Did he flounce /hair flip out, leave with civility or go down in flames?

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.

https://www.interest.co.nz/users/Eco-Bird

It would appear Eco Bird has been banned from this site.

Also, come to think of it, wheres Bobster?

I think he changed jobs and now frequents car sales blog sites

"Nzdan... wait wut? Eco-Bird left?"

He was missing you, Gingerninja.

Life here had become meaningless for him. )-;

TTP

Agent TTP, perhaps life here could become "pointless" for you too?

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".

80% here are realistic type, the other 20% are optimistic

Carlos 67: "This blog follows the 80/20 rule, 80% of the people here are DGM's."

Right now there are 2 thumbs up to your post and 8 thumbs up to R P's rebuttal, amazing, exactly 80/20! well done!

Alternatively, Sturgeon's Law could be more pertinent. ie 90% of everything is crap.

Doom and Gloom are a matter of perspective.
I'm more excited and confident about 'what's probable' than I have been for 10 years!, - given all the signals we see about us.
It's what we all chose to do about them that matters.

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15

House prices dropping a bit is not doom and gloom at all for the large and growing number of Aucklanders who can't afford to buy.

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.

Yes he is savvy and ASTUTE

If interest rates stay this low then house prices are only going one way and that's UP by 2020. The time to buy is now and fix that mortgage.

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.

bw, precisely

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?

Oh yeah ?
Bond yields
Great ?
Last resort of fools
Plenty of other options Buyers will come who are already cashed up
Not everyone’s still in the stock markets

13400 Properties for sale in Auckland. 249 say "reduced." Has hovered around 100 for the year...

171 "reduced" on realestate.co.nz in Auckland. Variety of locations and qualities, plenty of outlying stuff like Helensville, but also stuff in Remuera, Mt Wellington. Everything from sections to ~$4m McMansions

"Urgent" and "must sell" turn up more results than reduced.

And some of the "reduced" results looked like the asking price had been reduced from Comical to merely a bit silly, when compared to RV as a rough guide.

Switched my mortgage to 3.95 (down from 4.2) just now. Bank completely waived the break fee. Look forward to doing so again in the coming months as rates fall further

Which bank was that? Did you break and refix the same term?

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!

lonewolfnz - Should of sold your home , Sold privately and waived the Agent fee. Look forward to seeing how much have saved in the coming months as prices fall further !!!!

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%

lonewolfnz - sounds like you are in lalaland.

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)

Just imagine the exodus of Kiwi's to Australia once they realise they can get a house in Sydney or Melbourne for half the price of Auckland, and earn twice the amount of the money. There will be nobody left here.

KW,

I know it's petty,but why do you have an apostrophe in Kiwis? You are using the word as a plural-more than one Kiwi-so no apostrophe is needed. It's really simple.

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!

Nic, that's not what Spin Bindi suggested - lol!

Cheaper money (but ever harder to access) aside, the November onwards results will make interesting reading. Might even see Barfoots clearance dip below 20%....

"Nic, that's not what Spin Bindi suggested"

Don't shoot the messenger!

Bindi (from REINZ) merely reports the results.

She's not responsible for them.

TTP

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-homes...

Only an Agent would try and fool people all of the time.

Where is Nic? Listings have been very slow this week so I feel like I’m getting the upper hand.

Where do I sign up?
Buy now at high prices, Westspac are now saying that they will fall pretty much 1 year after the 30 year mortgage begins (thankfully the loan may be 1-2% smaller) but what happens to the equity as the rates could be on the up by then too.

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)

"The long term trend line continues to point downwards"

No it doesn't, if you disagree, post a link to a graph of NZ property prices showing "the long term trend pointing downwards"

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.

Yes some people here cannot even tell what direction a graph is going, let alone do any math.

If the auction result continues the way it is now, by early next year it will be a different story.

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.

I reckon average prices should rise with good gains in most places except Auckland. Auckland is likely to slide.

Experts and Media.

One day will come out with book and next day with doom.

So do not be surprised if next week, one see a report of how bad the housing market has fallen or is falling.

does anyone pay any attention to bank economists? They are all vastly overpaid and mostly useless.

Nope, not even for entertainment.

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.

Dead cat bounce ...then gradually decline.

The global economy is starting to slow down, When the interest start rising then we are in trouble.

We lag Australia by 6 months

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-wi...

Well aren’t you a big know it all?

I think they were talking about Christchurch.

Call someone out and you’d better be right sunshine. Where does it say Christchurch?

It mentions Canterbury rebuild, which has a little more specificity towards Christchurch than any other area in the country. Anyway I was just trolling you for being an expert in hindsight.

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-...

Have you taken my advice re that mortgage broker yet?

What advice about a mortgage broker? There's nothing wrong with my mortgage.

Man you get riled up so easily, go masturbate into a sock you'll feel better.

So.Much.Ewww.

Yes, very classy. But not quite his lowest moment. I once posted a picture of a crying dribbling baby (aka Nic Johnson). Nzdan then proceeded to imply that the substance in the infant’s mouth was semen.

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-a...

Not saliva or mucus ay? Wonder what you were referring to. Guess we’ll never know.

PVA glue.

Haha, I’m not easily riled, I just like a good argument. We both know what’s wrong with your mortgage - it isn’t with a proper bank and you are getting fleeced with their interest rate.

Haha fair call. I’ll get there, not the end of the world though given the size of the mortgage. We made do with the options we had at the time and bought a house on 1 income with a new born.

Banks are competitive with mortgages at the moment. Ask threefold to negotiate you a better deal (4%) with a proper bank and get the new bank to pay your break fee. The mortgage broker charges the bank not you.

I know what’s best for you