Even though the country is in lockdown as the Government tries to eliminate the delta variant of Covid, ANZ chief economist Sharon Zollner says at this early juncture the bank’s economists don’t think it is a game changer for underlying economic momentum or the broader housing cycle.
What she does expect is lockdown measures will likely see listings and sales fall sharply. But they should bounce back, keeping the degree of tightness in the market – and therefore house price pressures – relatively stable.
Zollner says even a 10% drop in house prices from July levels would only erase five to six months of recent house price gains.
“That doesn’t seem unmanageable in the grand scheme of things.”
The bank’s economists’ central assumption is annual house price inflation will moderate fairly quickly from spring.
They believe rising mortgage rates, tax policy changes, tighter credit conditions, affordability constraints and new house building will more than offset the fundamental issue plaguing the housing market – not enough houses.
Even a few months of negative house price moves over the summer months have been pencilled in as listings are assumed to lift in line with seasonal patterns.
This forecast, however, also assumes the housing deficit, relatively solid household income growth, and still relatively low mortgage rates in an absolute sense is enough to prevent annual house price inflation from turning negative.
Zollner says the economists do have some sympathy for weaker house price forecasts than the bank’s own.
“Given the stratospheric starting point and the lengthy list of housing headwinds, risks are skewed towards a sharper cyclical downturn than pencilled in.
“From an affordability perspective, it’s possibly the only way to achieve progress in a reasonable time horizon.”
She says for the broader economy, the implications of such a decline will depend on how it affects household confidence and spending, as well as residential construction.
Housing is a key booster of growth in the economy, but it’s not the only driver.
Zollner says key export commodity prices are high, there is a little more fiscal stimulus in the pipeline, and perhaps most importantly the labour market is close to, or even exceeding, full employment, with wage pressures rising.
“So while housing and Covid risks remain, there is a robustness to the economy suggesting policy makers don’t need to be too concerned about a small house price wobble.
“But something more significant, if it threatened the broader economic recovery, could stop OCR hikes in their tracks.
“Covid isn’t the only reason for policy makers to tread cautiously, with the global growth outlook and market sentiment looking decidedly wobblier.”