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The Reserve Bank is projecting a steady rise in house prices next year, but it doesn’t see prices returning to their 2021 peak within the next three years.

Its forward projections have the Cotality House Price Index increasing consistently from next year through until least late 2028.

However, by then it still expects the index to be about 3% below the record high reached in late 2021 at the very peak of the rapid Covid housing boom.

The index rose about 36% between mid-2020 and late 2021, but then fell about 13% between early 2022 and early 2023.

Prices have since gone through a period of small rises, a period of small falls, and another period of gradual small rises.

The Reserve Bank’s latest Monetary Policy Statement notes recent price stability “could reflect weak population growth and elevated long-term interest rates”.

It acknowledged “supply side reforms in the housing market, such as less restrictive zoning laws” may also be addressing housing demand.

The statement also noted “upcoming reductions in mortgage loan-to-value ratio requirements are unlikely to have a material effect on house prices, especially with debt-to-income restrictions now in place”.

Chief economist Paul Conway said the housing market appeared to have changed.

“It’s too early to call it a structural change in the housing market, but there are some indications that that might have happened.

“Changes of zoning rules in Auckland over the years may mean that we are getting residential investment becoming more responsive to changes in demand for houses.

“If that is the case, we are less likely to see volatility in house prices and more likely to see changes in demand come through in changes in investment.”

Outgoing governor Christian Hawkesby said house prices had been unsustainable but are now expected to rise more in line with rises in income.

“That’s a good place to be in. It’s a world of a sustainable outlook, where house prices are near sustainable, and we’re expecting them to continue on that path.”

In written commentary following Wednesday’s OCR decision, Cotality chief property economist Kelvin Davidson said he did not expect it to affect the housing market much.

“More generally, given lower financing costs and the prospect of a stronger economy in 2026, there’s a solid case for thinking that property sales activity will continue to rise next year, which is also likely to lead to a degree of growth in house prices too.”

Davidson said the rise projected by the Reserve Bank was a “modest lift by past standards, but consistent with the fact we now have debt to income ratio caps”.

The Reserve Bank said the projections were conditional on a wide range of assumptions, are subject to significant uncertainty, and may change substantially over time.

Michael Sergel is ��һ�ǿ�����talk ZB’s business reporter, covering the daily life of business and the business of daily life. He’s been covering business, politics, local government and consumer affairs for over a decade.