House prices are being picked to surge next year, underpinned by low mortgage interest rates and recent cancellation of capital gains tax plans.
Westpac chief economist Dominick Stephens said he expected nationwide house price inflation to lift from the present 2% to 7% in 2020.
While he expected “moderate” price growth in Auckland, there would be more “rapid” increases elsewhere around the country.
The other big change has been the “very sharp drop” in mortgage rates over recent months; an almost 40 basis point drop in the average two-year fixed rate, which was now 60 points lower than a year ago, and five-year rates were now 120 basis points down on a year ago.
Later in the 2020s, Stephens expects “flat or falling house prices” prompted by rising mortgage rates; the inverse of low rates underpinning higher prices.
Rising rates would also be due in part to the Reserve Bank’s requirements for banks to hold more capital, which would push mortgage rates up, independent of the OCR. “This general rise in mortgage rates will push house prices down relative to rents in the mid-2020s,” Mr Stephens said.