2 Aug 2012

Westpac upgrades next year's house price forecast

7:04 am on 2 August 2012

Westpac has upgraded its forecast for house prices next year and expects a 6.5% increase in house prices this year.

Westpac's economic overview is forecasting house prices will rise 8% next year, up from its previous forecast of 3% growth.

The bank

Westpac chief economist Dominick Stephens says the New Zealand economy has accelerated as expected but the surprise recently has been very low inflation.

He says it means the Reserve Bank can keep interest rates low for longer and the Official Cash Rate is not expected to be moved until July 2013.

"But of course the longer that interest rates stay low, the hotter the housing market will get and it is certainly warming up right across New Zealand now".

He says the Reserve Bank isn't concerned at the moment.

Mr Stephens says there is about 6% annual house price inflation at present, but house price inflation is expected to accelerate further.

He says at that point it could be a concern for the Reserve Bank, particularly if there is a lot of debt growth going with house price growth, so if people are getting themselves into debt to afford expensive houses.

Mr Stephens says it's likely the Reserve Bank will keep interest rates low for the next year, but beyond that a period of rapidly rising interest rates is expected.