Westpac reckons residential property is headed for a slowdown

In their recent April 2018 Newsletter, Westpac Economists provide an update on the state of the housing market. Based on their analysis, although the housing market is still in positive territory, Westpac economists warns that the housing market is headed for a downturn.

There may be a continual increase in house prices as buyers bring forward their purchase decision in order to lock in generally low interest rates and other buyers rushing to beat the upcoming 5-year bright line test rule.

As the National Party have continued to point out, the Labour led government may put the country back into a fiscal deficit which means they will look for additional revenue streams ie taxes. The Tax Working Group are looking at recommending a capital gains tax as well as removing the ability for landlords to offset rental losses against their other sources of income. Together this will bring more income for the government and in the government’s point of view, reduce the housing demand from investors. Coupled with the foreign buyers ban, the economists expect demand to drop off sharply leading to a worsening housing market.

Westpac produced the graph below showing the negative correlation between house price inflation and interest rates. As interest rates rose between 2003 and 2008, the growth rate in house prices slowed down.

 

As interest rates fell from 2011 to 2016, the growth rate in house prices trended upwards. Now, under central bank policy appears to indicate that interest rates are on the rise again. This is likely to be the main reason Westpac thinks property is heading for a slowdown.  We will wait and see.

 

 

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