ANZ: New Zealand house prices to “fully unwind”

PHOTO: ANZ. FILE

ANZ Bank has released research tipping that the Reserve Bank of New Zealand (RBNZ) will have to lift the official cash rate (OCR) another 1.5% to a peak of 5%.

ANZ has based its aggressive OCR forecast on the nation’s ‘wage price spiral’, which has caused “significant upside risk” to the domestic inflation outlook:

Specifically, ANZ notes that “if the labour market doesn’t show signs of loosening soon, the OCR will very likely need to go higher than the 5% peak we’ve pencilled in”. And that “while our forecast is that a 5% OCR will get the job done, the potential for ongoing positive inflation surprises (particularly via labour costs) shouldn’t be discounted”.

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The prospect of a higher OCR means New Zealand house prices will fall further. ANZ now forecasts “around a 18% peak-to-trough decline in house prices, or 27% when deflated by [Quarterly Employment Survey] wage growth”.

“In income adjusted terms, that’s a full unwinding of the pandemic stimulus / FOMO [fear of missing out] driven bump”.

ANZ also believes it will be “a line ball call” whether the economy falls into recession. Although it does not necessarily believe a recession would be bad if it “brings about a transition from the currently over-stretched economy towards sustainable expansion, while also avoiding a significant household income shock”.

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While this may be true for the economy, a recession and house price crash are bad news for the Ardern Government, which will go to an election late next year seeking a third term. For Jacinda Ardern, the timing could not be worse.