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Westpac Lowers House Price Growth Forecast for 2024
Revised Expectations for House Price Growth
Westpac has significantly scaled back its forecast for house price growth in 2024. Initially, the bank predicted a 5.8 percent increase in house prices for the year. However, recent developments have led Westpac to adjust its expectations to a modest 2.1 percent growth.
Factors Influencing the Adjustment
The slowdown in the housing market since the election and the Reserve Bank’s policy of maintaining high interest rates are the primary reasons behind Westpac’s revised forecast. The bank observed that activity in the housing market has “decidedly slowed” since mid-2023. This trend has persisted, with house sales growth lagging in recent months, even though previous forecasts suggested some resilience in market activity.
Comparative Forecasts from Other Banks
Westpac is not alone in revising its housing market expectations. ASB recently adjusted its forecast to a mere 1 percent growth, while ANZ projects a 3 percent increase. BNZ also revised its forecast, reducing it from 5 percent to 2 percent.
Market Dynamics
Westpac noted that listings have started to increase, yet sales volumes remain modest, indicating a shift in the market in favor of buyers. A significant factor affecting house price growth and activity is the Reserve Bank’s commitment to high interest rates. While Westpac initially anticipated an official cash rate (OCR) cut early next year to support the market, the Reserve Bank’s continued tough stance and delayed rate cut have dampened optimism.
Economic Indicators and Future Outlook
Westpac’s economists believe the more pessimistic outlook is reflected in the downturn of various economic growth and confidence indicators, including the housing market. As long as this pessimism persists, a significant pick-up in house prices in 2024 seems unlikely. However, Westpac still expects a 6 percent rise in house prices in 2025, driven by ongoing housing shortages due to population growth and a slowdown in construction.
Insights from Infometrics
Infometrics chief forecaster Gareth Kiernan noted that Westpac was not the most bullish among the banks earlier in the year, with ASB and BNZ expecting double-digit percentage increases. However, in recent months, all banks have adjusted their forecasts downward. Kiernan highlighted that debt-servicing costs remain a major constraint for buyers, and with interest rate cuts pushed out to 2025, there is little relief in the near term. Additionally, the current mix of migrants, skewed towards lower-skilled and lower-income individuals, means many new arrivals are not in a position to purchase homes. This has resulted in more upward pressure on rents, but house prices remain weak.