ANZ economists have examined what could happen to Auckland house prices.

New Zealand's biggest residential mortgage lender, has warned of an "outright house price fall", sparked by interest rate rises or a global recession and cited Auckland in particular.

In a survey examining residential property investor intentions, bank economists issued a reminder that house prices don't always rise. "We could see an outright fall in house prices courtesy of higher interest rates or an economic recession," said the survey document whose contributors include ANZ chief economist Cameron Bagrie and senior economist Philip Borkin. "The higher prices go of course, the harder it is for them to keep going up. Given that Auckland has one of the most stretched affordability ratios in the world, any further house price increases from here ups the ante on a correction to bring affordability metrics back into line," the ANZ economists said. "While impossible to pinpoint a date, we need to consider candidates for a turn. We could see an outright fall in house prices courtesy of higher interest rates or an economic recession (likely global-led). "Conversely, we could see a stagnation of house prices while incomes catch up. The latter would obviously be a preferable adjustment path and that is the path New Zealand has followed before. But with low inflation worldwide it's difficult to envisage inflation and incomes doing the work at the moment.

"Were we to see a deep recession, the widespread belief that New Zealand (or at least Auckland) house prices never fall too far could be sorely tested. While owner-occupier property prices tend not to correct downward too far (people just take their house off the market and stay put), the same cannot be said for land prices, apartments or investment properties, which do tend to move in line with the economic cycle," the economists said.

Already, signs are emerging that the national housing market was changing, they said."Evidence is now mounting that the tighter loan-to-value ratio restrictions that have just come into effect are cooling the housing market. House sales are down nearly 10 per cent versus a year ago and houses are taking longer to sell (though the market is still incredibly tight). Typically, house prices follow sales with a 3-6 month lag. House price inflation is already easing and we expect it to continue to do so," the economists said.

Were we to see a deep recession, the widespread belief that New Zealand (or at least Auckland) house prices never fall too far could be sorely tested.

Source: ANZ

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