New Zealand’s Reserve Bank this week joined a raft of other forecasters and took a punt on where house prices might go.

However, unlike those predicting more growth, it expects house prices to flatline from the middle of this year, largely due to government policy changes to tax and housing policy.

Those changes – in conjunction with others – “are expected to see house price inflation ease to nearly 0% in quarterly terms from the middle of this year,” the central bank said.

Other factors include slower population growth, the reintroduction and tightening of loan-to-value ratios, the waning impact of interest rate declines and increased supply from strong residential construction.

The New Zealand Real Estate Institute's house price index, which measures the changing value of property in the market, increased 26.8% year-on-year to 3,775 in April.

The RBNZ, however, is expecting house price growth to slow “significantly and soon,” said RBNZ governor Adrian Orr at yesterday's press conference after the central bank signalled a lift in the official cash rate in September 2022.

The central bank, however, isn’t expecting current house prices to fall.

Rather it anticipates prices to “basically go sideways from the middle of this year for a period of time,” he said.

Orr did add the caveat that these are “asset price projections, which are wildly uncertain.”

Orr said it was consistent with The Treasury’s forecasts – made public at budget 2021 – but they were done independently.

Forecasts released in the budget show the Treasury sees property price inflation peaking at 17.3% in the year to June 2021, before a dramatic slowdown in house price growth to 0.9% in the next 12 months.

“Most of the factors that were driving house prices are either waning or disappearing,” said Orr.

He pointed to the latest LVR statistics and said they indicate new restrictions are “biting as anticipated.”

Data released yesterday showed total new mortgage commitments slowed to $8.5 billion in April from $10.5b in March. Meanwhile, Kiwibank economists now expect the first rate hike to come in May 2022, ahead of the central bank’s forecast for September that year.

“All going well, the RBNZ ‘may’ be in a position to lift the cash rate from a rock bottom 0.25%. Of course, a move in May means a follow-up move in August, and introduces the risk of  three hikes to 1% next year,” it said.

Like the central bank, however, it says “house price growth should slow fast. But don’t expect a correction, as NZ continues to face a major housing supply shortage.