Revised economic forecast
Kelly Eckhold (pictured above), chief economist at Westpac NZ, has announced a downward revision of the bank’s forecast for house price inflation in New Zealand for the upcoming year.
“With indicators pointing to a ‘buyers’ market,’ we have revised down our forecast for house price inflation in New Zealand this year,” Eckhold said, reflecting a shift in market conditions influenced by several economic factors.
Housing market cools
Initially, Westpac had a relatively positive outlook on the house price cycle, anticipating that house prices would outperform general inflation due to strong population growth and a slowdown in the construction sector. However, the momentum in the housing market has slowed since mid-2023.
“House prices did pick up slightly from around May 2023 until the general election and we did see some modest house price growth in the first quarter of 2024 that was close to expectations,” Eckhold said.
Market cooling indicators
The median days to sell a property have stabilised at around 42 days, indicating a market pace, where house prices grow close to the rate of inflation, which is lower than the historical average post-Global Financial Crisis and pre-COVID era. The sales to listings ratio, which peaked in mid-2023, has not shown signs of recovery, suggesting the shift towards a buyers' market.
RBNZ’s policy influence
The Reserve Bank’s (RBNZ) current policy stance, influenced by high inflation outlooks, has also affected the housing market.
“However, the RBNZ’s stance has hardened in recent months reflecting the still uncomfortably high inflation outlook,” Eckhold said.
This contrasts with Westpac’s earlier anticipation of OCR reductions from early 2025, which was expected to support the market.
Economic growth and confidence
The economic environment, marked by downturns in growth and confidence indicators, has led to more conservative expectations for house price increases in 2024.
“While this pessimism persists, it seems hard to see a significant pick-up in house prices in 2024,” Eckhold said.
However, Westpac remains somewhat optimistic for 2025, expecting a boost in house prices as the OCR is anticipated to fall earlier in the year than currently projected by RBNZ.
Westpac on long-term valuation and outlook
Westpac’s long-running ‘investor value’ model suggests that the housing market is currently fairly valued, with expectations of house price growth being adjusted to about 2% for 2024 and a modest increase to 6% in 2025.
“The ongoing mismatch between housing demand and supply remains,” Eckhold said. “The impact of that mismatch (and ongoing above general inflation rent increases, plus improvements in investor tax treatment) points to higher house price inflation in 2025.”
Read the full Westpac analysis here.
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