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OPINION: It would be fair to say that there is huge consensus among economists and commentators that the residential property market is on the verge of prices increasing.
Since the start of spring, sales numbers have been increasing, and commentators have been seeing those elusive ‘green shoots’ and ‘stirrings’ in the prices being paid.
The signs are so positive that the focus is starting to shift from the ‘when’ to ‘by how much’.
Economists being economists try to answer such questions, and to be fair to them the variables involved in forecasting something as complex and vast as house price increases accurately is a nearly impossible task.
Even that massive unknow we call human behaviour can undermine their calculations which are based around hard facts such as economic activity, mortgage interest rates, bank lending restrictions, inflation and employment levels.
Economists are the first to warn us to treat forecasts with caution and not as inevitable certainty.
Regardless, we continue to devour house price forecasts with relish – as they influence our perception of the state of our overall personal wealth and for those either buying or selling, can influence decision making.
One of the economic forecasts I take more notice of in terms of housing is the Reserve Bank’s Survey of Expectations, which it publishes quarterly. This survey is based on the forecasts of between 30 and 50 of the country’s foremost economists and business leaders, taking the mean (most common value) of their individual forecasts for 1 and 2 years out.
The survey’s strengths are the standing of the forecasters, the evening out of high and low predictions and the size of the panel.
The latest consensus forecast of this group, released in November, is that house prices nationally are likely to rise 2.4% next year and 3.4% in 2027.
This would put the rise for next year in line with their forecast inflation rate, and that for 2027 slightly ahead of their inflation rate.
In summary, these numbers suggest the housing market is likely to go through a positive, stable period as the economy recovers over the next two years, with prices making a modest recovery from where they are currently.
I read that as positive news for the real estate market as it will see the breaking of the price shackle that has constrained the market for the past 2 to 3 years.
The drivers that are key to a price break out are in place – low mortgage lending rates, banks with mortgage money to lend, an easing of LVRs, high levels of quality property for sale and the potential that overseas buyers may return to the top end of the market in 2026.
A potential negative on the horizon is Labour’s announcement of its intention to campaign on the introduction of a capital gains tax (CGT) on non “family homes”. However, until more detail is released on the proposed policy, forming a view on any likely impact on house prices is premature.
We are now four years on from when house prices hit their peak in late 2021, and during that period – with prices first declining significantly, then recovering modestly and finally plateauing - our housing stock has changed considerably, particularly in our bigger cities.
The housing stock is considerably larger through years of high levels of new builds; the high price of land has led to intensification of land use; and the rise of apartment and town house accommodation now outstrips the building of stand-alone houses.
Through the intensification of land use, the cost of town houses and apartments are extremely price competitive compared to stand alone housing – making them attractive to new entrants and those seeking to either downsize or release some of the capital locked up in an existing stand alone property.
Only time will tell whether the current house price forecast of the panel of 30 to 50 economists and business leaders the Reserve Bank consults is accurate or not, but what is likely to be accurate is the four-year hiatus in prices is coming to a close.