House price inflation is expected to average 3.1 percent a year over the next five years, says Infometrics. Photo: RNZ
House prices will be 20 percent lower in real terms in the mid-2030s than they were at the end of the house price peak in 2021, one forecaster says.
Cotality - formerly Corelogic - has released its latest data, which shows the housing market is picking up in activity but values are still flat.
Gareth Kiernan, chief forecaster at Infometrics, said that was likely to be the case for some time yet.
He said his forecasts were for house price inflation to average 3.1 percent a year over the five years to June 2030.
In nominal terms, prices would pass their 2021 peak in mid-2029.
But when adjusted for inflation, prices in mid-2030 would still be a fifth below the peak.
That is a bigger drop than recorded in the global financial crisis (GFC), when prices fell 14 percent in real terms, but not as big as the drop of the 70s, when prices were down 38 percent in real terms, although still rose 47 percent when not adjusted for the decade's significant inflation.
Cotality chief property economist Kelvin Davidson said prices had only lifted about 0.5 percent in the year to date and it was possible that they could end the year 2 or 3 percent higher than they started.
He said prices were still about 16 percent below their highest point, and agreed it could be a long time before they returned to that level, even in nominal terms.
"At a 5 percent annual growth rate - you have to take compounding into it as well - but at a 5 percent growth rate it's going to take about three years from here. But once you get down to 2 percent or 3 percent [ a year], it's going to take quite a bit longer, five or six years."
He said it was possible that growth in house prices could pick up but said it was not unexpected that the recovery would be slow.
It had taken five years after the GFC for prices to get back to where they had been.
"There's always been a chance this time that it would be slower and we're already three-and-a-half years into the cycle, if we get another three-and-a-half years to get back to the peak it's a seven-year cycle."
It is a more prolonged and deeper downturn, he said, and there were other factors such as debt-to-income ratios and loan-to-value restrictions at play that were not in place after the GFC.
"There's always been explanations for why this cycle could take a bit longer than it did back then."
ANZ said it expected house prices to increase by about 0.5 percent a month over the rest of the year.
"However, with high-frequency economic activity indicators soft of late, and housing market indicators still going sideways for the most part, the risks are tilted towards slower house price inflation than this."
Kelly Eckhold, chief economist at Westpac, said his team still had a forecast for 6 percent growth this year. "Although the last month of data wasn't as strong as expected. We will review our forecasts when we do our August forecast review ahead of the Reserve Bank's MPS."
Davidson said stock listing numbers were high, even with activity picking up, and concerns about the labour market could make people hesitant to commit to big purchases, even while interest rates fell.
"There's a bit of balance out there at the moment.
"There's two sides to it and some people might be disappointed [by market softness] but people who are looking to buy a house are probably fairly happy."
He said it "might not be the worst thing" to have a period of readjustment for the market.
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