House prices will bounce back to new high in 2026, Treasury forecasts

Wednesday, 14 December 2022

The Treasury forecasts house prices will bounce back strongly once economic growth returns.

House prices will fall by almost 20% from their high in December last year by the time they reach their low in June 2024, according the Treasury’s latest forecasts.

However, it is then forecasting a strong recovery with house prices bouncing back to match their previous all-time high late in 2026, on the back of rising household incomes and falling interest rates.

House prices would rise almost 10% in the year to June 2025 and by almost 9% the following year, and by June 2027 would be about 10% up on their level in September this year, it predicted.

The forecasts appear more optimistic than those of many of the banks, including ASB which has forecast a larger fall in nominal house prices from peak to trough of 25%.

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The Treasury’s economic forecasts, released in its half-year economic and fiscal update (Hyefu), also suggest unemployment will peak earlier, but at a slightly lower level, than the Reserve Bank has been forecasting.

Treasury secretary Caralee McLiesh said it expected unemployment to peak at 5.5% in June 2024, before starting to come down.

In contrast, the Reserve Bank forecast in its latest monetary policy statement in November that unemployment would peak at 5.7% in March 2025 and would not drop below 5.6% before the end of that year.

A spokesperson for Finance Minister Grant Robertson said it would be correct to assume the Government’s proposed Income Insurance Scheme would not be in place in time to help New Zealanders with the next hump in unemployment.

That was given it was not expected to be in place until the 2024-25 financial year and would have a six month stand-down period before any claims could be made.

Robertson predicted the expected recession next year would be “shallow”.

The Treasury is forecasting three quarters of GDP decline, with the economy contracting by a total of 0.8% during the calendar year of 2023.

But McLiesh said there were “many uncertainties in the outlook, in particular about the exact timing of the slowdown”.

The Treasury is still forecasting the Government will return to surplus in the year ending June 2025.

But it has cut the size of the forecast surplus to $1.7 billion, from the $2.6b surplus it had been forecasting that year at the time of the May Budget.

ANZ said it still saw a risk the return to surplus could be pushed back a year come next year’s Budget.

Council of Trade Unions economist Craig Renney said the Government’s books painted a picture of an economy that was likely to tread water over the next year.

“We should be using the opportunity provided by this set of forecasts to tackle issues such as our infrastructure gap, climate change, productivity, and our housing crisis,” he said.