27-08-2020

A lot has changed over the past few weeks. The NZ economic recovery has hit another speedbump in the form of a shift up in NZ’s COVID Alert Levels. Fiscal authorities have extended support measures, and the Reserve Bank is forcing NZ interest rates lower with renewed vigour. We’ve changed our interest rate call and now expect the Reserve Bank’s cash rate to be slashed into negative territory next year. Our mortgage rate forecasts have had a good clip as a result.

These developments have relevance for the housing market. We’ve updated our view accordingly. Our previous forecast for a 6% fall in house prices (itself one of the least pessimistic around when it was made) has been upgraded to ‘just’ a 2.8% fall by March 2021. Our view on regional performance remains broadly unchanged with Auckland underperforming, Canterbury outperforming, and a mixed picture amongst the regions thanks to COVID’s disparate sectoral impacts (see forecast table on Page 3). Should our view pan out, it would mark a much shorter and shallower house price correction relative to the last cycle. This reflects the extraordinary support measures rolled out this time around.

We think the risk to our view is for a larger cycle. Essentially, a bigger upswing over the coming six months, giving way to a bigger downswing thereafter.