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House Prices Tipped to Rise Next Year

A leading survey suggests home values are heading modestly north, writes Sally Lindsay.

By: Sally Lindsay

20 August 2023

The Reserve Bank’s quarterly Household Expectations Survey shows respondents believe house prices are going to rise 1.6 per cent over the next year.

This compares to its August Monetary Policy Statement which predicted house prices would rise 3 per cent over the next year.

The household survey shows a 0.6 per cent rise in house price expectations over the previous survey. Over the next five years, house prices are expected to increase significantly by 8.1 per cent, a 1.9 per cent rise from the previous survey of 6.2 per cent.

For those owning a house, 13.4 per cent say there could be a chance of them missing a mortgage payment in the next three months, but the good news is that is down by 2.4 per cent from 15.8 per cent in the last survey.

The average reported chance of missing a rent payment in the next three months is 16.3 per cent, an increase from last quarter’s 15.5 per cent.

Price Predictions

The RBNZ’s Monetary Policy Committee says house prices appear to have stabilised and its projection for house prices to lift by about 3 per cent next year is reasonably balanced, remaining around estimates of sustainable levels.

While the RBNZ had previously expected house prices to continue falling through the back part of this year, prices have instead flattened off in recent months. It says the predicted rise in prices will help support household spending.

The committee says higher interest rates have contributed to lower demand for housing, with house prices falling 15 per cent from their peak in November 2021 to March 2023.

“Stronger net immigration, alongside a peak in interest rate expectations, has occurred at the same time as house prices have started to stabilise and are now assumed to have reached a trough earlier than expected.”

Higher mortgage rates have, however, increased debt servicing costs for households, but the lagged impact of recent increases in mortgage rates has yet to impact household cash flow fully, the committee says.

This reflects the yield on total mortgage lending, which is expected to increase 1 per cent over the coming 12 months as borrowers roll onto higher interest rates.

Lower house prices also tend to lead to reduced spending by households as they feel less wealthy and have less borrowing power, contributing to lower discretionary spending on durable goods such as household appliances over recent quarters.

The committee says, however, the earlier-than-expected stabilisation in house prices is assumed to support household consumption over the next three years, somewhat offsetting the dampening impact of overall lower house prices.

Lower housing demand has also reduced home building over the past year. Higher interest rates have made borrowing for housing more expensive, and lower house prices – particularly when construction costs are high – have made residential housing development less attractive.

The number of new residential building consents has fallen over recent quarters, indicating a substantial slowdown in residential building activity ahead.

Paty Rises

To help with mortgage payments and the cost of living, households in the survey are expecting a 6.4 per cent increase in their wages over the next year, up from a 6 per cent increase in the previous one. This is assuming they stay in the same job with the same number of hours.

They also expect CPI inflation to be 6 per cent in a year and down to 3.3 per cent in two years.

Westpac senior economist Satish Ranchhod says the expectations are an encouraging sign for the RBNZ, which is battling high inflation of 6 per cent in the year to June.

One-year inflation expectations were at 7.4 per cent and two-year expectations at 4.5 per cent in the previous survey.

“With expectations dropping back, the RBNZ can feel more comfortable about the outlook for domestic inflation. The results will help to counter concerns about the persistent strength in domestic inflation,” Ranchhod says.

Results from the survey also show expectations for inflation five years ahead remain steady at 2 per cent – the mid-point of the RBNZ’s target band.

Details from the online survey of about 1,000 Kiwi householders have been used by the RBNZ more in its monetary policy deliberations after the bank’s analysis of it two years ago found it was significantly better than similar forecasts.

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