Weaker than expected

Nationally, house prices are still a long way below their peak. ANZ is forecasting it will take years to reattain those levels.

Chief economist Sharon Zollner says the bank is waiting to see November’s post-election REINZ data before making any more significant adjustments to its forecasts.

She says it’s not just house prices that are on the weaker side – the indicators for sales and new listings show there is further softness to come.

House sales ticked down in October across all major markets. House sales have a tendency to be volatile month-to-month, but ANZ says it will be watching closely to see if this resumes last year’s trend of a weakening housing market, or whether it’s just a hiatus awaiting policy certainty.

Also indicating weakness ahead, new listings are (just) above year-ago levels for the first time this year. All else equal, this extra supply will make it more difficult for house prices to rise meaningfully over the next few months.

This lift in listings is on top of an already large stock of inventories, which needs to decline before meaningful rises in house prices are likely.

The weakness in some of the indicators and some technical seasonal adjustment factors have prompted the bank to make the small downwards revision to its outlook.

“It is difficult to separate election inertia from underlying housing market momentum in recent data,” Zollner says.

“In the meantime, the risk is that house prices rise less than we expect next year, given recent modest further lifts in mortgage rates and the somewhat faster-than-expected labour market loosening.”

She says the faster than anticipated restoration of mortgage interest deductibility and other landlord-friendly policy changes agreed to by the new coalition Government are risks in the other direction, though difficult to quantify.

“New labour market data, with unemployment rising as tighter monetary policy cools demand and raises unemployment.”

Dropping job security is likely to make would-be first home buyers more nervous about taking the plunge. “But there’s also a feed-back loop here.

“Sharply rising unemployment can negatively influence credit availability too, making the outlook all the more uncertain for credit providers,” she says.