Westpac is now expecting house prices to to rise by about 8 percent next year and another 5 percent in 2026. File photo. Photo: RNZ
House prices seem set to rise through 2025 after a weak couple of years - but how much?
Westpac said on Tuesday it had revised up its forecast for house prices and now expects them to rise by about 8 percent next year and another 5 percent in 2026.
"The housing market underperformed our expectations over the past year, with prices moving sideways amidst low sales and plentiful listings. However, lower interest rates are laying the basis for a solid recovery, and we expect confidence will return to the market."
Chief economist Kelly Eckhold said the primary driver of the faster sharper recovery next year was expected to be the "earlier and front loaded" fall that had been seen in interest rates.
"We don't expect too much for the balance of 2024 but see things picking up through 2025 when interest rates will be in the mid to high 3s.
"We don't see a boom - our forecast sees house prices growth a touch above long-term average in 2025. The still weakening labour market will act as a brake on the market for a while yet. But we see these lower interest rates as providing a fillip to the market relative to the stagnant performance seen thus far in 2024."
Real Estate Institute data for September showed a 0.4 percent decrease in values year-on-year and an increase of 1 percent month-on-month according to the house price index, which smoothed out difference in price data caused by the makeup of sales.
ANZ economist Henry Russell said he expected 4.5 percent growth next year and 5 percent in 2026.
"I'm seeing some upside risk to our forecast for 2025 at this stage, but not yet material enough to warrant a forecast change. We'll be reviewing our house price forecast next month.
"While it's early days, we haven't seen the lift in sales volumes that's ultimately required for a meaningful shift in house price momentum. Our expectation is that a lift in activity will emerge over the coming months, but we'd like to see another month of data to corroborate that."
Kiwibank economist Sabrina Delgado said she expected increases somewhere between 5 percent and 7 percent next year, and similar the year following.
But she said it could be more if interest rates dropped more than expected, or less if unemployment rose more than expected.
Infometrics senior forecaster Gareth Kiernan said it was "a really difficult balancing act" trying to forecast house prices over the next year or two, weighing up the effects of weakening net migration and slowing population growth against the effects of declining mortgage rates.
"The latter factor has been the key determinant of the performance of house prices throughout the last four years, so it makes sense if
Westpac are revising down their interest rate outlook, that they are also revising up their expectations for house price inflation.
"My view is that house prices relative to incomes, and relative to rents, remain significantly overvalued, which should act as a limitation for how far house prices can be bid up. However, we've previously seen that when the market starts to show a bit of upward momentum, that it can be a bit self-fulfilling, because people jump into the market on the expectation that prices will continue to rise further - take the bounce in the market during 2009/10 as an example where the underlying economic fundamentals were still awful, but some buyers were trying to pick the bottom of the housing market and started buying prematurely."
He said he had revised his own forecast for next year up to 5.2 percent but after that the effect of weaker demand would kick in and prices could fall 2.3 percent in 2026.
"The 2026 figure also reflects the affordability issues that I mentioned, as well as a view that the government will be further progressed towards its plans to improve the supply of land/housing, which should act as a medium-term constraint on house price inflation."