Home owners can expect their market values to rise an average 4.8 percent over the coming year, according to the Reserve Bank’s survey of 37 business leaders and professional forecasters.

It’s a dramatic return to above-inflation increases in house prices – the same panel anticipates consumers price index growth will slow to 3.6 percent over the next 12 months.

And while the rising house prices may seem like good news for asset owners, they’re bad news for those looking for homes.

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First home buyers have just returned to the market, according to a CoreLogic report out this morning – they accounted for 27 percent of purchases in the September quarter. But high interest rates and resurgent house prices will snuff out any optimism among those seeking a toehold on the property ladder.

Newsroom has tracked down some of the forecasters on the Reserve Bank panel, who point to factors like inbound migration, and the incoming government’s promised tax changes for landlords and foreign buyers.

The survey respondents expect house prices to rise an average 4.84 percent in the next 12 months, and another 6.22 percent the following year.

Economist Michael Reddell says he’s picking prices to rise even faster – up 9 percent in the coming year. Gareth Kiernan, from Infometrics, says housing remains “horribly unaffordable”.

Expectations for house price inflation (12-month change)

The Reserve Bank Survey of Expectations should come with the caveat that the leaders and forecasters have been wildly wrong in the past. As this chart shows, comparing their forecasts with the actual house price rises that eventuated, they were completely caught by surprise by the Covid-era house price rises of 2020 and 2021.

Indeed, at the start of Covid they had been predicting a collapse in house prices. And when the collapse did finally come, on the back of Credit Contracts Act changes and increased interest rates, they failed to anticipate its speed and scale.

Now, though, their 12-month forecasts have aligned with actual changes in the Corelogic house price index, providing greater confidence in their predictions for the year ahead.

“For me, the key is that housing is still horribly unaffordable relative to incomes,” Kiernan says. “Even with the house price falls we’ve seen over the last few years, the amount of debt people need to take on to become a homeowner remains daunting.”

With the previous survey in July, any expectation that house prices were going to bottom out was very much “an act of faith”, but now he says the direction of travel is definitely upwards. “It’s more a question of how far prices might rise.

“The prospect of renewed house price growth should be causing some concern at the Reserve Bank. But then, they seem to think that house prices are somewhere near their sustainable level, so maybe they won’t be losing any sleep…”

Kiernan says something clearly needs to be done to improve the supply of housing and land on a sustained basis. He hopes the incoming National-led government’s plans to enable a broader range of ways for infrastructure to be funded and provided will have an effect over the medium term, as well as possibly better progress in fixing zoning and resource management impediments.

“However, it won’t be a quick fix, and of course they have the political tightrope to walk – trying to increase the housing supply, but avoiding too much downward pressure on house prices because of the general voter perception that falling house prices are a negative economic outcome.”

Stronger growth in house prices can’t be sustained, he concludes. Affordability issues, debt-servicing costs, the low yields for investors relative to interest rates and a likely fall-off in migration – we could see any outsized increases in house prices reverse out again in 2025.

Reddell believes the fall in building consent numbers and the big net migration numbers (“larger now than most had really recognised”) would contribute to rising prices. He’s less certain about the new government’s promised tax changes. “I’d be a bit surprised if either the interest deductibility change or the foreign buyers tax had made much difference,” he says, “but they work in the same direction.”

Newsroom Pro managing editor Jonathan Milne covers business, politics and the economy.

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