|
What Is The Trend rate of House Price Increase Over The Next 30 Years? (ANZ view)
As per REINZ house price index, house prices have increased by an average compounding rate of 6.0% ( 3.8% after inflation) per year from1992 to now. Can this series of increase continue to be expected over the next 30 years? There exists suspect. As per ANZ, a closer to 4% per year is more likely.
Main forecast of trend
- There will likely be big ups and downs along the way of increase.
- Over 2026 will see house prices fall around 2%, due to the impact of the fuel price shock.
- Over 2027 and 2028, the house prices are expected to increase at 3-4% per year.
- Over the next generation, house prices are rising broadly in line with incomes rather than outpacing them.
- Investors and home owners would receive lower returns.
- This would improve access to home ownership and support a more balanced and resilient economy.
A 6% per year increase might not be repeated
- Looking at annual average house price increases across advanced economies since 1992, New Zealand’s 6% rate of increase is the third highest of 24 countries, behind only Norway and Iceland.
- Real house prices in some countries are no higher now than they were in 1992. Japan’s house prices have had an average rate of decline of 0.6% per year.
- From the 1930s to the 1990s, the trend rate of real house price increase in Australia, the UK and France was around 2% per year.
- a rate of around 4% nominal and 2% real house price increase seems typical in the international and historical experience – much lower than New Zealand’s rate of 6% nominal and 3.8% real seen since 1992.
What were behind the house price inflation in the past 30 years?
- The most important factor was a downward trend in interest rates. Global interest rates, NZ rates as well, steadily trended down from the 1990s until 2021.
- The larger decline in New Zealand’s interest rates compared to overseas helps to explain why New Zealand’s house price increase was larger than those in most other countries.
- The second important factor behind New Zealand’s high rate of house price increase was a fairly respectable rate of per capita income growth from the 1990s to around the time of the COVID-19 pandemic, alongside population growth.
- Struggling housing supply was also an important factor.
What is the trend rate of house price increase over the next 30 years?
ANZ best guess for a central estimate is an average rate of increase of around 4% per year over the coming decades (2% real plus 2% CPI inflation). This is from international experience that average rates of nominal house price increases ranging from 2% to 6% are well within the realm of possibility over a period as long as 30 years.
However, there’s a massive range of uncertainty around any central estimate. No one knows what’s going to happen to interest rates, the global economy, and government policy over 30 years.
For a mortgage?
Contact us for a talk and discussion: 8am - 7pm any day on 027 263 7878
|
Patrick Wang
