Expect house prices to fall as downward pressures kick in over the next two years, an investment advisory company is warning.
Jarden Securities analysis of the latest house prices and construction of new homes suggested construction would continue at pace, but prices were likely to fall.
Its blended price analysis put the national median house price at $746,192 at the end of December next year, down by 6 per cent on the $792,574 forecast for the end of this year. Followed by a further 3 per cent decline into 2023.
Jarden equity research director Grant Swanepoel said some people held the view house prices did not go down.
READ MORE:* Why house prices have not stopped rising * Buyers need to find extra $200k to buy a home, Real Estate Institute data shows* No let up in housing market frenzy in March
People did not expect prices fall because that was the experience abut 15 years ago when prices defied mortgage rate increases and continued to rise, he said.
But, in the 1970s, prices fell by almost 40 per cent over the decade and, for a few shorter periods, through to 2000.
The reason prices did not fall in the mid-2000s was that it was a period of housing re-rating as an asset class. We expect another re-rating is unlikely to be available to the housing market in the current cycle.
House prices could fall by 6 per cent by the end of next year.
Downward pressure was now building for house prices, Swanepoel said.
Rising mortgage rates would put new homeowner and investors under pressure, while another was the limited ability to increase rents.
New homeowner resources are also stretched as mortgage payments (as a percentage of household expenditure) have recently breached 28 per cent, pushing past the 26 per cent 12-year average.
These factors led to Jardens expectation that prices would decline as supply shortages continued to ease, although the shortages would continue for many years.
Swanepoel said this, along with economic growth returning to a range of 2.5 to 3.5 per cent, would start to put construction volumes under pressure.
We anticipate a sharp pullback in volumes over 2022 and 2023, although moderated by current momentum and Government interventions to improve the undersupply in the market.
While most commentators have stopped short of forecasting price declines, there was a growing consensus the housing market had started to slow and price increases were easing.
Recent figures from CoreLogic and Quotable Value showed the rate of monthly and quarterly price rises had continued to slow over the last few months.
Jarden equity research director Grant Swanepoel says downward pressures are building for house prices.
And the Real Estate Institutes July figures, out Thursday, had sales down by 11.7 per cent on July last year and by 5.3 per cent on June.
ASB senior economist Mike Jones said the institutes figures showed activity had continued to slow, so the banks expectation of a cooling in the market remained intact.
But he said there was a risk the boom would stay stronger for longer relative to the banks forecasts house prices gaining another 15 per cent by the end of the year.
ANZ senior economist Miles Workman said the market was poised to slow eventually, with annual prices increases expected to be low over the next year.
Official cash rate hikes, tighter lending restrictions, recent tax policy changes, the catch-up in supply relative to new demand, and affordability constraints were all significant headwinds, he said.
In fact, while the market has appeared rather resilient these past few months, the risk that all of this comes to a head, culminating in a much sharper house price adjustment than we expect is top of mind.
It will likely be top of mind for policymakers as they try to engineer a soft landing for housing with as little economic fallout as possible.
