RBNZ expects 4.5% house price growth in 2025

The Reserve Bank is expecting house prices in New Zealand to rise about 4.5% this year but that’s a much more modest increase than has been the case historically, according to RBNZ assistant governor for money Karen Silk.

Silk told parliament’s finance and expenditure committee (FEC) that we are starting to see house prices stabilize at about the top end of what RBNZ considers to be sustainable.

A number of factors will constrain house prices from rising further, particularly the RBNZ’s debt-to-income ratio restrictions (DTIs), Silk said.

RBNZ introduced DTIs in the middle of last year.

Factors such as the low wage growth will feed into the DTIs, meaning that at some point the restrictions will constrain house price inflation, Silk said.

The DTIs are designed to take the volatility out of house prices.

“They’re not a constraint on house prices today. They will be in the future” if house prices start to ramp up, she said.

That’s because the debt levels required to afford significantly more expensive house prices will be too high for home buyers’ incomes to meet the DTIs, she said.

The latest Real Estate Institute data showed the national house price index fell 0.3% nationwide in April and was 0.3% lower than in April last year.

While national house prices were up 4% from five years ago, they were down 15.3% from the November 2021 peak.

RBNZ chief economist Paul Conway said the central bank is “not predicting a woosh in the housing market any time soon.”

ANZ Bank NZ has the same forecast as RBNZ for 2025, expecting that prices will start to rise “more meaningfully over the second half of the year” once the current very high number of properties available for sale has been worked through.

ASB Bank noted that prices haven’t moved significantly upwards yet this year and it expects that the weak outlook for the labour market will constrain a recovery in the demand for housing.

On Wednesday, RBNZ said the unemployment rate will rise from 5.1% in the March quarter to 5.2% in the June quarter and stay at that level until the December quarter, when it will decline to 5.1% and to 4.7% by the December quarter of 2026.

It expects the unemployment rate will reach 4.3% by the March quarter of 2028.