ANZ's economists are predicting house prices will rise 4.5 percent next year. Photo: RNZ / Nate McKinnon
A stronger-than-expected housing market rebound is a possibility as interest rates fall, the country's biggest bank says.
ANZ's economists expect a small fall in house prices over this year, and values to stabilise towards the end. Next year, they expect prices to pick up 4.5 percent - a little less than BNZ's forecast of 7 percent.
They earlier said that the recovery from this downturn is harder to predict because it has been a policy-induced recession rather than something caused by external factors. It was not clear how much activity, including the housing market, was simply deferred rather than cancelled, they said.
They said were some early signs that the housing market might bounce back quickly - including Auckland's auction clearance rate.
In recent weeks, as interest rates moved lower, the Auckland auction clearance rate had bounced, they pointed out. Two-year mortgage rates had fallen 1.02 percent across all banks since the peak in November.
"In level terms it still implies a soft market but nonetheless it saw a decent lift, which has been sustained over the past few weeks. It's certainly far too early to read much into that signal but these data do hint at the possibility of a rebound.
"Are there plenty of buyers out there, waiting for the bottom while house prices are still falling? If momentum turns quickly, that could be self-reinforcing, seeing FOMO return and animal spirits captivate the market.
"And as construction activity continues to slow (even if the cutting cycle has begun), an increasing supply-demand imbalance will add upward pressure to prices over time. But there's plenty of reasons to suggest that any material upside will be constrained, given a broader economic momentum, slowing population growth, still-stretched affordability and the DTI restrictions in place.
"On the flipside, how much weakness is still yet to flow through to the economy (and labour market) from past monetary policy tightening remains uncertain. If the economy is on the verge of a deeper slowdown, the road of recovery for the housing market could be a more gradual one."
They said that they expected interest rates to fall to a level last seen in about 2015, when short-term term fixed rates were in the mid-5 percent range.
At that point, house price inflation was running hot - peaking at 18 percent a year in August of 2015.
They said, while many economic factors are different now than they were then, that proved mortgage rates at that level were not sufficient to curtail strong price momentum.
Property investor Steve Goodey said he had the sense that there was pent-up activity waiting to get back in the market.
"I think people have been sitting on their money for a couple of years and we will see a big lift come spring and summer."
He said low sales numbers in recent years meant banks were willing to lend and a new generation of investors had watched other investors make money and wanted a piece of the market.
"I'm seeing people pay more for 'needs reno' houses than they are paying for 'renovated' houses which is a beginning of the next boom in the cycle thing… Everyone at this point in the market thinks that the difference between 1960s original and fully renovated is $15,000 three trips to Bunnings and four weekends on the tools."