The housing market has regained some momentum after a slowdown in the first half of last year, but major changes are on the cards, Westpac economists report.
In their weekly commentary on the state of the New Zealand economy, the economists state: "Auckland house prices have recovered all of their decline, and prices have continued to rise in much of the rest of the country. Canterbury is the main exception, as the housing stock has been restored to pre-earthquake levels.
"An easing in lending conditions – both lower mortgage rates and a loosening of loan-to-value restrictions – have helped to lift housing demand in recent months."
The report also notes that rents rose by 0.6 per cent, with a slowdown in Auckland offsetting a pickup in other parts of the country.
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"Meanwhile, new home prices rose just 0.4%, the smallest quarterly rise in more than six years. This highlights that the upward pressure on building costs in recent years has not just been a product of capacity constraints; builders have more scope to raise their prices when existing home prices are running hot."
However, the report states there is an array of new Government policies lined up against the housing market, including:
Adding to the unease is their prediction that mortgage rates are more likely to rise than fall in the coming years, on the back of rising interest rates around the world.
"All together, we are forecasting a small decline in house prices in the second half of this year, and for prices to remain subdued in the following years. In those circumstances, it is hard to see the housing components of the CPI as a greater source of inflation than they already have been to date," the report says.
Westpac senior economist Satish Ranchhod, one of the authors of the report, predicts there will be an extended period of softness within the housing market, with much of that softness concentrated in Auckland.
"Nationwide, we expect prices to fall by a total of around 2 per cent over the next 3 to 4 years," he told OneRoof.
"Some investors may seek to reassess their portfolios as a result of the expected phasing out of negative gearing but as the Government's policies have been well flagged, it is unlikely there will be panic within the market."
Westpac chief economist Dominick Stephens told the Otago Daily Times house price declines are expected to be slight rather than dramatic.
He said that there were several variables open to the Government or Reserve Bank, should house prices take too much of a nose-dive.
Sharp house-price declines usually occurred when unemployment rose, but "that’s not something we anticipate", he said.
