ANZ economists have scrapped their previous 5% to 6% house price inflation forecast as the market had the “bit between its teeth again” – pushing them to expect an 8% increase by the middle of the year.
ANZ chief economist Sharon Zollner and senior economist Liz Kendall said in the bank’s latest Property Focus publication that there is even some upside risk to the percentage.
“The market is tight and house price expectations have increased – but we think a number of headwinds will keep the market in check,” they said, as reported by Interest.co.nz. “Given the current low interest rate environment, house prices could prove volatile.”
They expect house price inflation to reach 8% year on year before moderating – with affordability constraints, moderating population growth, and prudent bank and buyer behaviour keeping the market in check.
“But house price expectations have increased and the market is tight, posing further short-term upside risk to the outlook. And as always, longer-term downside risks should not be ignored,” the economists continued.
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The economists noted the drop of official cash rate (OCR) last year, influencing experts to expect lower interest rates.
“Consequently, the housing market tightened. Monetary policy is clearly 'working' (putting aside the question of whether rising house prices are in the long-term interests of the New Zealand economy or its inhabitants, which isn’t something monetary policy can do much about),” they said. “But it wasn’t just interest rates driving the lift; this was against a backdrop of continued population growth (albeit easing), limited growth in housing supply, a tight labour market, and some easing in headwinds, particularly on the credit side.”
“Annual house price inflation is currently sitting at 5.3% y/y (3mma), below its historical average of 6.8%. But we now expect this to reach 8% y/y in mid-2020, before moderating. This is above the RBNZ’s November MPS forecast for house price inflation to peak at 5.7%,” they continued.
Zollner and Kendall expect stronger house price inflation to support consumption, residential investment, and GDP growth in the coming years – which is why “we no longer expect the RBNZ to cut the OCR any time soon.”