Banking system

PHOTO: Antonia Watson – Chief Executive Officer of ANZ NZ. FILE

ANZ Bank economists are picking the housing market may start to rebound in the second half of the year but the Reserve Bank will surprise with one more rate rise as inflation remains stubborn.

Reserve Bank Governor Adrian Orr

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In the bank’s latest property report it is forecasting rises in house prices of 1.6 percent in the September and December quarters of this year, compared to previous forecasts of a 0.4 percent fall in the September period and a similar sized increase in December.

The economists said they were surprised by the Reserve Bank’s (RBNZ) “muted response” to higher government spending and strong immigration in last week’s monetary policy statement.

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“Ultimately, for a time at least, this implies looser monetary conditions than we have been expecting. This, combined with surging net migration and the confirmed loosening in LVR (loan to value ratios) restrictions from 1 June, has led us to upgrade our house price forecast.

“In short, housing tailwinds now appear to be blowing a little stronger than the headwinds. But we’re not convinced the RBNZ will be able to let that run.”

The economists expected the RBNZ to be challenged by changing circumstances.

Reserve Bank

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“We expect the RBNZ will need to tighten monetary conditions later in the year once all has been revealed in the data.”

They expected that would occur in November with the official cash rate rising 25 basis points to 5.75 percent.

However, they highlighted there was also much uncertainty with what happened to mortgage interest rates, the pressure on household budgets, and supply and demand factors in the market.

“All up, we may be calling this a floor for house prices, but the outlook is no more certain than previously.”