House prices should fall next year - Westpac

Even then, the recent rate of increase has been so dramatic that, on Westpac’s forecasts, it could take a few years just to get house prices back to where they were at the start of this year.

In the bank’s latest Weekly Economic Commentary acting chief economist Michael Gordan says higher interest rates will have major implications for the housing market.

“We have long used a ‘user cost’ approach to explain the general trend in house prices," he said.

“The key insight is that interest rates, rather than supply issues, are by far the most important driver of changes in house prices,” he says. “Notably, in RBNZ governor Adrian Orr’s speech on housing last week, the analysis behind it also adopted this user cost approach.