PHOTO: This shift in forecast is attributed to heightened sales activity and a rise in net migration. FILE
Westpac’s updated housing market projection envisions an 8% increase in house prices within the upcoming year. In their latest Economic Overview, released today, the bank’s economists have indicated that the housing market has taken a positive turn, displaying a stronger-than-anticipated resurgence in prices.
This shift in forecast is attributed to heightened sales activity and a rise in net migration, as highlighted by the bank’s economics team. The report notes, “With a surge in population growth and the anticipation that borrowing costs are nearing their peak, the significant decline in house prices that commenced in late 2021 has now been halted. Sales have also rebounded from their post-pandemic lows. Given the stabilization observed over recent months, we have adjusted our predictions for house prices. Our current projection suggests an almost 8% increase across the nation throughout 2024.”
Previously, the economists had foreseen a mere 2.5% rise in 2024.
While the bank report holds an optimistic outlook for house price escalation, it adopts a more cautious stance regarding interest rates. The report presents a compelling case “for further tightening by the RBNZ” and indicates that if inflation pressures persist at their current levels, “interest rates will need to be maintained at elevated levels for an extended period.”
The report notes, “Recent months have demonstrated that, akin to other advanced economies, inflation pressures remain substantial. Although the drop in inflation from 6.7% to 6% during the June quarter was promising in line with expectations, the underlying scenario is more worrisome as the decline is primarily attributable to weaker tradables prices. In contrast, inflation in domestically influenced non-tradables sectors experienced only a slight decrease from 6.8% to 6.6%.”
“Population growth driven by migration and fiscal policies is propelling growth precisely at a time when the RBNZ would have otherwise anticipated a gradual decline in inflation. The housing market has experienced a turning point and is tentatively embarking on an upward trajectory, sooner than the RBNZ had hoped.”
The Westpac economics team anticipates a 25 basis point increase by the RBNZ in November, pushing the OCR to 5.75%, despite indications from the RBNZ in May and July suggesting that the OCR had peaked.
Westpac economists do not foresee a reduction in the OCR until August of the following year, projecting a gradual decrease thereafter. The bank’s forecast predicts that the OCR will not dip below 4% until mid-2026.
Kelly Eckhold, Chief Economist at Westpac, mentioned in advance of the report’s release that mortgage interest rates would need to adjust if the OCR reaches 5.75% in November. “The market has not fully factored in the 25 basis point increase into the yield curve. Therefore, we can expect further elevation in mortgage rates, particularly in the floating and one-year rates,” Eckhold commented.
Eckhold further indicated that rising interest rates internationally could impact New Zealand mortgage rates. “Global funding costs have been on the rise, which is an important consideration.”
He concluded, “It seems likely that mortgage rates will remain at these relatively elevated levels for the foreseeable future.”
Westpac’s forecast regarding rates coincides with a shift in market sentiment concerning interest rates.
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