Earning power should stop huge house price falls

“We’re simply not forecasting a household income (employment) shock that would necessitate the forced sale of properties and exacerbate the downturn, says Sharon Zollner, ANZ’s chief economist.

She says however, it is entirely possible the bank’s outlook regarding household incomes and broader economic momentum is on the optimistic side, and that the path towards taming inflation passes through a more marked economic slowdown than it is forecasting.

“This is where the RBNZ’s inflation-targeting grit may well be tested over the coming year or so. Higher interest rates mean stronger headwinds for the housing market.” Given the strong starting point, we’d still call this a soft landing – something that’s quite evident when looking at the implied house price level.”

The bank’s house price forecast still leaves house prices up a whopping 30% at December this year compared to December 2019, pre- pandemic. In that light, the bank’s relatively pessimistic forecast seems rather optimistic.