Will house prices drop? ASB economists have their say

by Roxanne Libatique12 Jun 2021

The government is determined to curtail housing prices, releasing new housing amendments early this year. However, ASB economists do not expect house prices to drop any time soon.

In ASB’s latest quarterly economic predictions, ASB chief economist Nick Tuffley stated that house prices are unlikely to fall in the next year or so as the New Zealand economy continues to recover from the impacts of the COVID-19 pandemic. However, ASB economists expect price growth to slow down.

“We expect the pace of sales activity and price appreciation to slow this year. Government tax changes will slow investor demand, adding to the headwinds from stretched affordability and a levelling off in mortgage rate declines,” Tuffley said.

Over the past year, house prices in New Zealand increased by 27%. Now, ASB economists predict house price inflation will slow to 10% year-on-year by year-end, with a further cooling to 5% by the end of 2022.

“The growing headwinds that have picked up over the past year, including the government tax changes, will slow investor demand, and we may also start to see some natural slow down with house prices very high relative to incomes, and mortgage rates not likely to fall any lower,” Tuffley said.

“The opening of the Trans-Tasman bubble means there is some good news on the horizon for the tourism and hospitality sector – while interest has been light so far, there are reports of increased interest from Australians to visit NZ during the winter – and the ski season in particular.”

ASB economists also expect the Reserve Bank of New Zealand (RBNZ) to start lifting the official cash rate (OCR) from May 2022, with rising interest rates helping to “keep a lid on the pace of house price inflation.”

“Overall, New Zealand has weathered the COVID-19 pandemic relatively well, and its economy has outperformed many of our main trading partners,” Tuffley said.

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