COMMENT: If you’ve read any of my regular articles, you’ll know that I do my best to interpret what’s happening at any given point in time in order to offer an opinion on what that might mean for the housing market and for house prices.
Commentators do this because they know that readers are looking for certainty – but, to borrow a biblical quote, “we see through a glass darkly”. So, while we can continue to have confidence in what house prices will do in the medium to long term (they’ll continue to go up, just as they have over the past 40-plus years), there’s simply no way to know what will happen to them over the next few months.
Anyone who tells you otherwise is either fooling you or fooling themselves.
This is because we’re in an extraordinary period of history. After being under control for over 30 years, inflation has taken off like a newly escaped monster, revelling in its newfound freedom and unwilling to allow itself to be captured by its former masters.
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It will be captured, of course. At some point higher interest rates will quell inflation and we’ll see it peak and then start to come down until it lands back in its cage of between one to three percent per year. Once this happens, mortgage interest rates will start to track down again, but we don’t know when that will be and, to make things even more difficult, there’s a lag between interest rates going up and their impact on the economy becoming apparent.
For this reason, and despite the recent higher than expected inflation figure, it’s entirely possible that the Reserve Bank has already done enough to bring inflation down, but we won’t see the impact of recent OCR increases for some months. Because of this, the Reserve Bank is stuck between a rock and a hard place. Reserve Bank Governor Adrian Orr doesn’t want to give inflation any breathing room; nor does he want to overshoot by driving interest rates too high and end up driving the country into a deep recession, so while I haven’t been Orr’s biggest fan, I certainly don’t envy him this task.
Ashley Church: “There’s simply no way to know what will happen to them over the next few months.” Photo / Ted Baghurst
In the meantime, the avalanche of media releases from the major banks, breathlessly expressing their latest views on how far house prices will drop, are both irresponsible and unnecessarily alarming. The track record of the main banks at predicting what house prices will do – particularly since 2020 - is beyond abysmal and, if my own predictions were that far out of whack, I’d be ashamed to show my face in public.
As far as I can tell, the economic prediction units at these banks appear to be filled with people who had former careers predicting how much sea levels would rise in any given year. ASB recently predicted that house prices will fall 15% from market peak in its weekly economic note.
ANZ and Westpac have made similar forecasts. All should be treated with healthy scepticism based on the recent track records of these banks in getting such predictions right.
The reality is that house prices, on average, have fallen by about 7% across the country since August last year – and that the rate at which they’re dropping has been getting smaller each month, despite the steady increase in interest rates. If you read anything which contradicts this or presents a worse reality, it’s almost certainly because the article you’re reading is reporting on something other than the headline would suggest – so take care to understand what you’re reading.
It's a scary time for home owners right now, but it won’t last forever and the extent of the hit to the market is much less than most of the nonsense that you’re hearing and reading.
Of one thing we can all be certain: at some stage in the next couple of years, we’ll all be complaining about rising house prices again.
- Ashley Church is a property commentator for OneRoof.co.nz and a real estate business owner. Email him at [email protected]
* An earlier version of this article incorrectly implied that ASB had misled readers when it provided a house price forecast that was adjusted for inflation. ASB was clear in its language around the inflation-adjusted figure and their report was not misleading or alarmist. OneRoof apologies for the error.
