Get set for big bounce in housing market
Low interest rates are likely to power national house prices to new heights over the coming year, ASB economists say.
Chief economist Nick Tuffley said the bank was predicting that nationwide house price growth could hit 6 per cent by mid next year.
That’s up from 4.5 per cent at present, based on Real Estate Institute statistics.
But he said there would be wide variation within those numbers. Auckland would recover from a 3.1 per cent drop in prices this year to stagnate in 2020.
Christchurch would pick up from a 0.5 per cent drop this year to 2 per cent growth next year.
Wellington and regional New Zealand would shoot ahead to 9.3 per cent in 2020.
He said sharp falls in mortgage interest rates and still-strong population and labour income growth should boost the housing market. ANZ has now cut its one- and twoyear rates to 3.65 per cent and 3.59 per cent respectively.
The Reserve Bank’s ‘‘determination’’ to slash rates to get New Zealanders borrowing and spending could see a more enduring cycle of house price inflation, he said.
‘‘We have been hearing more stories about investors coming out of the woodwork again, cautiously.’’
He said the closer term deposit rates got to zero, the more appealing the property market was for investment.
Lower rates meant that investors could cope with lower rents.
Over the longer term, Tuffley expected Auckland prices to start rising again. In the near term, the ‘‘gentle decline’’ seen over the last 18 months would come to a halt, he said.
Prices in Auckland were still stretched compared to incomes and rental yields were low. The impact of the foreign buyers’ ban was likely to be most keenly felt in Auckland and Queenstown.
But in other parts of the country, there were not those restraints.
Tuffley expected Wellington price growth to rebound because the city still had significant supply shortages. ‘‘The number of houses for sale is incredibly low compared to the rate of turnover.’’
He said Wellington’s market was also supported by a boost in Government spending which led to an increase in the number of Wellingtonians in high-paying jobs.
Hawke’s Bay, Southland and Dunedin would probably continue to see double-digit price growth.
Tuffley said the market was fulfilling the Reserve Bank’s intentions.
‘‘That’s part of the objective of lowering interest rates. It encourages more borrowing and improves the cashflow of those who have preexisting debt.’’
Lower rates meant that investors could cope with lower rents. Nick Tuffley