FXStreet reports that strategists at Capital Economics expect the RBNZ to impose new lending restrictions in the months ahead which should result in house prices declining next year.

“The government has now granted the RBNZ the power to impose debt serviceability restrictions on mortgage lending. The Bank has argued that such restrictions, such as caps on borrowing relative to a borrowers’ income, would ‘be the most effective tool that could be deployed’ for curbing house price growth. So we expect the Bank to impose restrictions before long.”

“We think house price growth will slow in the months ahead and turn negative in 2022. Our forecast for interest rate hikes would be historically consistent with prices dropping 10% YoY. But that relationship may have been shifted by the low level of interest rates. We expect house prices to fall 7% between early 2022 and end-2023 which would keep affordability from declining further as interest rates rise.”