ASB: House prices will hold up

New Zealand house prices are unlikely to fall in the next year or so, but price growth will slow, ASB says in its quarterly economic predictions released today.

After a 27 per cent gain in the past year, house prices were expected to notch up a gain of 10 per cent by the end of this year, and 5 per cent by the end of 2022, said ASB chief economist Nick Tuffley.

If anything, the market was expected to perform better than anticipated, with even investor interest holding up to a fair degree, he said.

Low mortgage rates and a lack of supply has fuelled a recordbreaking streak for the property market since the Covid-19 pandemic. However, house-price growth is expected to slow dramatically by the middle of 2022, partly as a result of the Government’s housing policy changes announced earlier this year.

Tuffley said ASB expected sales activity and price rises to slow this year. But the market’s foundations remained solid.

‘‘There doesn’t seem to have been a wholesale collapse in investor interest in entering into the market, which was one of the unknowns in the face of the announcement that the Government made back in March.’’

Interest rates remained extremely low and not enough houses were being built.

A relatively slow pace of Covid-19 vaccination meant the border was likely to remain essentially closed until 2022.

That was expected to keep a lid on growth this year, with annual gross domestic product (GDP) growth expected of about 1.5 per cent to 2 per cent, until population growth and visitor spending increased.

GDP fell a worse-thanexpected 1 per cent in the three months to December 31, pushing GDP down 2.9 per cent for the year.

But overall, the country had weathered the Covid-19 pandemic relatively well, Tuffley said.

The global Covid-19 vaccine roll-out was helping boost economic growth, but that delayed growth was also causing problems, pushing shipping and commodity prices higher.

Global supply chain disruption would carry on through 2021.

Some container ships were reportedly bypassing New Zealand because of its isolation.

On the positive side, New Zealand exporters were benefiting from near record highs in the global prices for key commodities such as dairy, and the launch of quarantine-free travel between New Zealand and Australia had been a bonus.

The country was not close to making up the loss of income from international tourism.

ASB expected wage growth to pick up this year, which was positive for workers but would drive inflation higher.