House price surge anticipated

House prices are set to surge in the year ahead given the low mortgage interest rates and demise of any capital gains tax.

While the news will be disheartening for first-home buyers, the lack of inflation means businesses are unable to pass on increasing costs.

Westpac chief economist Dominick Stephens expects annual house price inflation to accelerate from the present 1.3% to 7% over the coming year, which should spur consumer spending and remove the need for a further cut to the interest-driving official cash rate by the Reserve Bank.

"The recent sharp drop in fixed mortgage rates, combined with the cancellation of capital gains tax, will be a major stimulus for house prices," Mr Stephens said.

New Zealand's recent economic performance was on the disappointing side, gross domestic product (GDP) growth averaging around 0.4% during the past two quarters of 2018.

Mr Stephens said he expected a similarly subdued 0.5% increase in the March quarter, but he said momentum would pick up again gradually over the rest of this year.

"Initially, the slowdown was led by consumers reacting to the cooling housing market."

House prices had been "flat to falling" in Auckland and Canterbury, and while prices in the rest of the country had continued to rise at a solid pace, nationwide house price inflation had slowed from a peak of 15% in 2016 to 2% at present.

Most recently the slowdown has become business-led, with surveyed business confidence now weak for an extended period, with signs of this manifesting in business decisions.

"Even though firms are citing capacity constraints and difficulty in finding workers, growth in business investment has been sluggish and private sector job advertisements have flattened off," Mr Stephens said.

The factors which have weighed on growth recently were likely to stick around for a while yet, but Mr Stephens said there were forces already in train which would support a significant, albeit temporary, lift in growth over the next two years.

"We expect GDP growth to start picking up from the second half of this year, accelerating to a peak of 3.1% over 2020."

Fiscal stimuli would play an important role in boosting the economy over the next two years, including continued spending on public services, the Families Package's continued support of household incomes, and winter energy payments coming into full effect this year.

"Finally, the Government's planned capital spending will also ramp up significantly over the next couple of years," Mr Stephens said.

He noted New Zealand businesses were struggling to pass on cost increases they were experiencing and with business confidence low, firms had become wary of investing or employing.

"This business malaise will be hard to shift, although it might ease a little over the year ahead," he said.

New technologies and globalisation were holding consumer prices down across the world, including in New Zealand.

"We're currently going through yet another iteration of what has become a familiar process."

Low inflation allowed for low interest rates, which cause higher asset prices and a period of stronger GDP growth, Mr Stephens said.



What a surprise, a bank economist spruiking an imminent surge in house prices. So better get in now and apply for a bank loan before prices go up! Shame on the ODT for printing this blatant free ad for the greedy banks. House prices in Sydney have fallen 15% since 2017 and are still falling. Why would house prices surge in NZ while dropping in Australia? In that case first home buyers would be better off leaving for Australia where wages are higher and basic necessities like food and petrol are cheaper. The NZ housing market is a ponzi scheme built on immigration and debt, and banks are one of the main beneficiaries of this scam.