ANZ reverses house price forecast, expects 1% fall

ANZ economists revised three key forecasts: two on the outlook for house prices and one on interest rate revisions. Photo / 123RF

Economists at ANZ had expected national house prices to rise 1% before this year’s end, but today reversed that to a 1% drop after worse-than-expected indicators lately.

“We have downgraded our house price forecast for 2024 a little further and now expect a 1% contraction by year-end as opposed to a 1% rise,” said the research team headed by chief economist Sharon Zollner.

In a three-step outlook revision they have also changed their expectations for house prices in 2025 and brought forward the time when they expect interest rates might drop.

House prices will begin to rise again next year but instead of a 4% increase, they now expect a 4.5% rebound.

Changes to interest rates completed the picture.

“We also expect the Reserve Bank to start cutting the official cash rate earlier than previously thought. We are now pencilling in OCR cuts from November this year,” they said, comparing the previous forecast when that wasn’t expected to happen until next February.

The catalyst for change was new economic data which showed a deterioration, particularly a performance of manufacturing index which fell 5.5 points, downbeat consumer confidence, and a business outlook which found firms were in no mood to hire, offer large wage increases, or invest.

Monthly net migration had fallen and job ads were down more than 8% in June, the ANZ economists noted.

House prices could stabilise in 2026 at a 5% annual rise.

That would be below the average annual rise of 7.5% between 2000 and 2010, the economists said.

“But given house prices relative to incomes have continued to rise higher over the past few decades, the potential for house price inflation to persistently outpace household income growth appears limited,” they said.

New Zealand was returning to a more normal inflation environment where affordability constraints would limit the potential for house prices to rise considerably.

In May, BNZ economists forecast a 2% house price rise in 2024 but it might not be that high. Previously, prices were expected to gain 5%.

Last month, Westpac revised its 2024 house price inflation forecast from 5.8% to 2.1%.

Slow momentum in the housing market since the 2023 election combined with the RBNZ’s “tough love” message of keeping interest rates high for longer are the key drivers, Westpac said. Prices are expected to rise 6% in 2025.

House prices will benefit from lower interest rates in 2025 and ongoing housing shortages as construction remains weak and population growth continues, the Westpac economists forecast.

House prices did pick up slightly from around last May until the October general election.

Modest house price growth also occurred in the first quarter of 2024 that was close to expectations.

“However, momentum in the housing market has decidedly slowed since around the middle of last year. Indeed, growth in house sales has been flagging in recent months, just as we would have expected some resilience in market activity based on our previous house price forecast,” Westpac said.

Anne Gibson has been the Herald’s property editor for 24 years, written books and covered property extensively here and overseas.