Acting chief economist gives his thoughts
Westpac has suggested that we might see “outright declines” in house prices in late 2022 once OCR rises begin, particularly as supply continues to ramp up in higher-demand areas such as Auckland.
Acting chief economist Michael Gordon said that he expects house price growth to “cool significantly” over the next year as a result of investor taxation changes, but they are unlikely to actually start dropping until interest rates begin to rise - likely in 2022, when Westpac has penciled in the start of potential OCR hikes.
Gordon also noted that consenting figures have been looking strong over the past few months, which is good news for buyers at every level.
Read more: Are NZ house prices showing signs of stabilising?
“We’ve had the building consent figures through for May, and they were down a little bit from April’s record high - but the overall pace is still setting fresh highs,” Gordon said.
“There’s plenty of work going on in Auckland, which has accounted for almost two thirds of the growth in consents in the past year.”
“That does reflect the scale of the housing shortage that Auckland has built up over the past years, but it also reflects the impact of the unitary plan in allowing more building, and in allowing more medium density building in particular,” he added.
“Overall, the economy still appears to have some pretty strong momentum.”
Westpac said that the original view of OCR hikes being delayed until 2024 would now cause “unacceptably low inflation and employment outcomes,” and with the economy performing significantly better than expected, we are likely to see the removal of the Reserve Bank’s ‘emergency’ policy settings sooner rather than later.
Gordon noted that business confidence has also increased, and the Reserve Bank should now be turning its attention to price pressures and capacity constraints.
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“The June business confidence survey suggested that firms are getting more upbeat about their own prospects, but rising costs are a growing issue and many of them are hoping to raise their prices over the next few months,” Gordon said.
“There is good reason to think that inflation is going to spike higher this year, but that’s not the horizon that the Reserve Bank should be focusing on. For them, the bigger issue is more about price pressures and capacity constraints as we head into next year and beyond.”
“Longer term interest rates are also rising in response the improved economic outlook,” he added. “Longer-term rates are no longer offering good value, relative to taking a shorter-term rate now and re-fixing it later.”
