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Reserve Bank changes its forecasts and now expects house prices to rise from the current quarter, with annual prices showing an increase by March next year


by David Hargreaves

The Reserve Bank (RBNZ) has again changed its view on house prices and now reckons we will see price rises in the current quarter.

And in forecasts prepared for its latest Monetary Policy Statement, the RBNZ said it believed house prices hit the trough - and stopped falling as of the June quarter.

This means the bank has revised up, quite markedly, its forecasts for the housing market in each of its last two Monetary Policy Statements.

Back in February the RBNZ had forecast a peak-to-trough decline in the market of 23%. Then in May it was 17%. Now it's just 15%.

The RBNZ now reckons that prices will grow 1.6% in the current quarter and the by March 2024 we will be seeing annual growth of 3.6%.

However, the RBNZ does not see this rate of growth accelerating, indeed after forecasting a 'peak' annual growth rate of 4.3% in June of next year the central bank sees the annual rate declining back to 2.6% by March 2025. However, it does see prices then rising a little bit more, with the highest level, 5.6%, set to be met in the last forecast month, which is September 2026.

Back in February the RBNZ said:

"House prices are projected to keep falling in 2023, consistent with very low sales volumes in recent months. House prices are assumed to have fallen by around 23% from their peak in 2021 to their trough in mid-2024, before recovering as interest rates decline toward their neutral setting."

But now in its latest MPS it says:

The constraining impact of high interest rates has been most visible in spending and economic activity related to housing over the past year. Higher interest rates have contributed to lower demand for housing, with house prices falling 15% from their peak in November 2021 to March 2023. Stronger net immigration, alongside a peak in interest rate expectations, has occurred at the same time as house prices have started to stabilise in recent months. While the outlook for house prices is highly uncertain, they are now assumed to have reached a trough earlier than was assumed in the May Statement.

The RBNZ said the stabilisation in house prices over the June 2023 quarter "was earlier than anticipated in the May Statement".

"The rapid return of net immigration, an increase in the number of residents due to the one-off 2021 resident visa, strong employment and nominal wage growth, slower increases in retail mortgage interest rates and a relatively low number of houses available for sale have contributed to this recent stabilisation in house prices," the RBNZ said.

"Consequently, we assume no further falls in house prices. We assume house prices grow gradually over the next year before increasing at a slightly faster pace in nominal terms over the remainder of the projection."

"Although house prices have stabilised, they are significantly below their previous peak. This lower level of house prices is expected to flow through to less household spending over the projection, as aggregate household wealth has fallen substantially."

This story was originally published on and has been republished here with permission.