




Another major bank lowers house price expectations


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I need to look up the article.New Zealand Bank Cuts House‑Price Outlook Amid Tightening Conditions
A leading New Zealand lender has issued a new forecast that signals a cooling of the property market, cutting its house‑price expectations for the coming year. The revision comes after a period of rapid growth that was fueled by low interest rates and robust demand, and it reflects a broader shift in the country’s economic environment.
The Bank’s Revised Forecast
The bank – one of the country’s largest mortgage‑providing institutions – had previously projected that median house prices would rise by roughly 8 % over the next 12 months. In its latest update, the lender now anticipates a more modest 3 % rise, and in some regional markets it even forecasts a small decline.
The change was announced in a press release that the bank sent to its stakeholders and was subsequently reported by RNZ. While the announcement did not specify the exact metrics used to arrive at the new figures, the release made clear that the revised outlook is based on a “combination of macro‑economic factors and recent market data.” The lender also highlighted that its internal stress‑testing models now incorporate higher mortgage‑rate scenarios.
Why the Shift? A Snapshot of the Current Macro Environment
1. Higher Borrowing Costs
The Reserve Bank of New Zealand (RBNZ) has been on an aggressive rate‑hiking path in recent months. Its official cash rate was raised from 3.85 % in late 2023 to 5.75 % by mid‑2024 – a change that has pushed mortgage rates above the 4 % mark for many borrowers. The higher rates reduce the affordability of new homes, dampening demand, and thereby slowing price growth.
2. Inflationary Pressure
While inflation has cooled from its historic highs, it remains above the RBNZ’s 2 % target. Housing, as a component of consumer price inflation, has seen its own price‑inflation trend rise from 5 % in early 2023 to around 6–7 % in 2024. The lender’s analysis suggests that as inflationary pressures ease, so will the upward pressure on house prices.
3. Supply Constraints and Construction Delays
The country’s housing supply remains tight. According to the latest data from the Ministry of Housing and Urban Development, construction permits for new residential units have been down by 4 % year‑on‑year. Labor shortages, supply chain bottlenecks, and rising material costs have also contributed to delays in new‑build projects, thereby limiting the addition of new inventory to the market.
4. Wage Growth and Income Growth Lag
While wages have risen steadily, the growth has not kept pace with the combined rise in housing costs and mortgage expenses. The Bank’s own models project that the ratio of median household income to median house price is now at its highest in a decade, implying that many potential buyers are approaching or exceeding their affordability limits.
The Bank’s Broader View: Beyond the Numbers
The bank’s statement also touched on its lending strategy moving forward. It said that it would “continue to review our portfolio and adjust our underwriting criteria to reflect the evolving risk landscape.” In particular, the bank is looking to tighten its credit‑score thresholds for borrowers with high debt‑to‑income ratios, a move that could further reduce the pool of potential home‑buyers.
The lender also highlighted its role in supporting the broader housing market. It has pledged to collaborate with local councils and developers to identify ways to accelerate the delivery of new housing units. This includes exploring modular construction techniques and partnerships that can reduce build times.
Reactions from the Industry
Mortgage & Finance Association of New Zealand (MFANZ) welcomed the bank’s updated outlook, stating that “the revised forecast is a realistic reflection of current economic realities and will help align market expectations.” MFANZ also cautioned that mortgage providers should be prepared for a possible uptick in credit‑risk levels if borrowers struggle with higher repayments.
Housing New Zealand, an advocacy group for first‑time buyers, expressed concern that the forecast could signal a “bottleneck” in the market, pushing up the cost of living further. The group urged policymakers to step in with measures to increase supply and improve affordability.
What It Means for Buyers and Sellers
For prospective home‑buyers, the bank’s forecast translates into an immediate effect: the cost of borrowing is higher, and the pace at which house prices are expected to rise has slowed. In practical terms, this means tighter budgets and a longer time horizon before the market recovers fully. Buyers who have been waiting to make an offer may find that their opportunity window narrows.
Sellers, on the other hand, may experience a more competitive environment if the market slows down. The bank’s forecast suggests that while the property market is not expected to crash, the growth rate will be significantly tempered. Those who have sold recently may see their gains held up, and sellers who have not yet listed their homes might find a more level playing field.
The Bigger Picture: A Balancing Act for Policy
The bank’s decision to lower house‑price expectations reflects a broader challenge that New Zealand faces: balancing the need to support a healthy, dynamic housing market against the risk of overheating. The RBNZ’s tightening of monetary policy was aimed at curbing inflation but has inevitably carried knock‑on effects for the housing sector.
Policy makers will need to weigh the bank’s revised outlook against their own objectives. Measures such as targeted subsidies for first‑time buyers, relaxed zoning regulations, and incentives for construction could be explored to offset the tightening market conditions. Likewise, the Reserve Bank will need to monitor the interplay between inflation, interest rates, and housing affordability to ensure that the macroeconomic environment remains stable.
Looking Ahead
The bank’s revised forecast sets a new benchmark for the coming months. While the outlook is more subdued, it is not a sign of a housing crisis. Instead, it is a recalibration that reflects an economy that has shifted from a period of rapid growth to a more measured, risk‑aware stance.
For stakeholders across the market – from individual buyers and sellers to lenders and policymakers – the key will be to monitor how the interplay of interest rates, construction activity, and income growth unfolds. The bank’s updated forecast provides a useful signal that will likely influence lending practices, mortgage pricing, and the overall sentiment in the New Zealand property market for at least the next year.
Read the Full rnz Article at:
[ https://www.rnz.co.nz/news/business/564989/another-major-bank-lowers-house-price-expectations ]