PHOTO: Kiwibank chief economist Jarrod Kerr is forecasting unemployment to peak at 6.5 percent early this year. Photo credit: File.
This year house price growth could slow but interest rates will stay low and unemployment is likely to rise, leading economists say.
Last year, COVID-19 caused a significant shock to the economy. In March, the Official Cash Rate (OCR) dropped 75 basis points to 0.25 percent. In September, two negative quarters of GDP growth put New Zealand officially in recession, with unemployment rising to 5.3 percent. Record low interest rates, temporary removal of loan-to-value (LVR) restrictions and Kiwis placing more value on homes caused demand for property – and property prices – to skyrocket.
Infometrics data shows property prices rose an average of 10.3 percent in 2020, boosted by a 17 percent rise in the month of December alone. The REINZ national median sale price reached $749,000 – an increase of almost 20 percent year-on-year.
As Kiwis are hoping for a more settled 2021, Newshub asked a group of economists what changes they expect for property prices, interest rates and unemployment in the coming year.
Property prices to rise at a slower rate
Economists expect house prices to keep going up, buoyed by low interest rates and continued demand from first-home buyers and investors looking for a higher rate of return.
Infometrics chief economist Brad Olsen is forecasting an average house price rise of around 12 percent this year.
“Infometrics expects house prices could rise 12 percent p.a on average as low interest rates, slow Government action, and widespread housing interest pushes up prices further,” Olsen says.
But from mid-year, economists expect price growth to slow as LVR restrictions flow through to lending. By restricting higher-risk lending, most investors will be required to provide a 30 percent deposit (20 percent for first home buyers).
“We’d expect the restrictions on investor lending to flow through into the property market in the second half of 2020, with slower house price growth,” Olsen adds.
“Prices will still grow, but perhaps not as fast as right now.”
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