ANZ economists say even though house prices look ‘out of whack’ with incomes, they can’t see a sharp downward correction

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ANZ economists see house prices remaining “on ice” for the foreseeable future with a number of “opposing forces” applying in the market to balance things out.

In the bank’s latest Property Focus publication chief economist Sharon Zollner and senior economist Philip Borkin have a look at the various factors influencing the residential property market this year. They don’t have a detailed look at how the new Government’s policies might affect the market, having done this in a previous Property Focus edition in November 2017.

In summing up the current situation they note that net migration is cooling, but should stay historically strong. Loan to value ratio (LVR) restrictions are being eased, but only gradually. Short-term mortgage rates are likely stable, although there is potential for some modest falls, but longer-term mortgage rates look set to rise in line with global reflationary forces.

“As is often the case with housing market drivers, there are plenty of moving parts. But even though house prices continue to look well out of whack with incomes, especially in Auckland, and the new Government intends to introduce policies targeting speculative housing demand, we still do not see a sharp downward correction as likely,” they say.

“That would require a sharp deterioration in debt serviceability and a lift in forced sales, which is not on our horizon. Certainly if the economy was sideswiped by some particularly nasty shock from offshore, that could change the picture, but at this stage we are still of the view that with a number of opposing forces will simply see house prices remaining ‘on ice’ for the foreseeable future.”

The economists say regional disparities in the housing market are likely to persist, which will come down to “the idiosyncrasies of various regions”.

“Figure 1 below shows that while the relativities between Auckland house prices and the rest of the country have come back a little, they are still roughly twice the price of the rest of New Zealand. Relative population pressures and housing shortages will see a wedge maintained.”

On migration, Zollner and Borkin say they believe net migrant inflows have peaked, given possible tweaks in government policy, a New Zealand economic backdrop that is perhaps not outperforming to the degree it was, especially relative to Australia, and due to natural cycling effects.

“While any migration forecast contains a great deal of uncertainty, we assume annual net inflows will ease to 45k by the end of 2019. While not necessarily a headwind for the housing market, it will be less of a positive influence.”

On Interest rates, they continue to see the Reserve Bank keeping the Official Cash Rate on hold for the foreseeable future.

“That will help anchor short-term mortgage rates………

Continue reading this article at the original source from Interest.co.nz

 

 

 

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2018-02-02T14:53:19+00:00