Higher costs and slower house prices growth ahead

Growth of house prices is expected to drop to five per cent by the end of 2022.

Slowing house prices, rising inflation pressures, and sooner-than-expected rises in interest rates will be prominent in the near term economic outlook, according to ASB Bank.

In its latest quarterly forecasts, the bank says there are growing pains ahead as the economy continued the recovery from the pandemic.

Chief economist Nick Tuffley says the vaccine rollout around the world is pointing to above-average growth this year.

He says the trans-Tasman bubble, global commodity demand, and rebound in domestic spending has all been positive for the economy, which has out-performed many other developed economies.

But challenges on housing and inflation are looming.

"The growing headwinds that have picked up over the past year, including the government tax changes, will slow investor demand and we may also start to see some natural slow down with house prices very high relative to incomes, and mortgage rates not likely to fall any lower," says Tuffley.

ASB is picking the growth in house prices will more than halve to 10 per cent by the end of the year, and halve again to five per cent by the end of 2022.

He says cost pressures are also rising for various reasons, ranging from supply chain problems, labour shortages and higher wages, to the supply of raw materials.

"Cost pressures have begun to ramp up significantly in NZ, and these are expected to be passed on to consumers over the coming few months."

ASB forecast inflation to reach three per cent by the end of the year, the top of the Reserve Bank's inflation band.

Tuffley says that will result in the RBNZ moving quicker than expected to raise its official cash rate, with ASB picking the first move in May next year, which will add further downward pressure on house prices.

-RNZ.




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1 Comment

Almost every time.......

Posted on 11-06-2021 21:07 | By groutby

...there are comments from wherever about housing and prices, it is always different...youv’e noticed right?....so, when do we realise that we humans make the decisions here?...the market is in play and, apart from the government doing their very best to screw things up for everyone, we, the gameplayers will decide how things work out, good or bad depending where you are I guess on the ’financial ladder’...personally I think so many economists rely on figures rather than figures + human emotions...at their peril...

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