Economist warns national house prices to fall further 7 percent, says NZ economy 'still in rehab'

A leading economist says Aotearoa's economy is "still in rehab" and is warning national house prices could fall up to a total of 25 percent.

HSBC's chief economist Paul Bloxham says it is "tough times" for the New Zealand economy with inflation still too high. 

"It's [inflation] coming down, we think it's passed its peak, but it's still too high."

Bloxham told AM the country has had to "jam on the breaks" to deal with inflation by hiking interest rates, and he expects rates to rise further.

With GDP falling in the fourth quarter of last year, Bloxham said that's "probably the beginning of an economic recession".

"We'll probably get another contraction in GDP in New Zealand."

And with national house prices already down 18 percent from the peak in 2021, Bloxham issued a stark warning house prices could fall a total of 20 to 25 percent, an up to seven percent drop. 

"A lot of that reflects that we think the RBNZ (Reserve Bank New Zealand) is probably going to lift interest rates a little bit more yet, probably next week," Bloxham said. 

Bloxham told AM the most recent lift in interest rates hasn't yet "fully fed" through to those on fixed-rate mortgages that still need to roll over to higher interest rates. 

"You are still yet to see the full effect of the interest rate tightening feed through to the housing market. So that's one of the things that we think probably puts further downward pressure on house prices."

New Zealand and Australia "taking longer" to turn the inflation corner 

Bloxham says Aotearoa and Australia are taking "a bit longer" to turn the inflation corner relative to other countries, because of our delay in reopening following COVID-19.

"We got that sort of revival of activity that happened a bit later than those other economies. And so that's pushed up demand and that's one of the other forces at work."

He added inflation will begin to come down because Aotearoa is already in an economic downturn.

Watch the full interview above. 

This article was amended on March 29 because it incorrectly stated that Paul Bloxham predicted house prices could fall a further 20 to 25 percent. Bloxham in fact predicted a total decrease of 20-25 percent and the story has been amended accordingly.