RBNZ admits its house price forecasts were wrong

Reserve Bank of New Zealand

The reserve bank told a parliamentary select committee that its forecasts had been off by an average of 5.2 per cent since 2010

The Reserve Bank of New Zealand (RBNZ) has admitted its house price forecasts have been consistently wrong in the past decade.

The bank has kept the cash rate and thus interest rates consistently low in recent years as house prices have exploded. It told a parliamentary select committee that its forecasts had been off by an average of 5.2 per cent since 2010, with house prices rising consistently higher than forecast.

Much of that was during the pandemic, with the average miss being a lower 3.9 per cent outside of pandemic.

The answers to the select committee come as MPs and analysts have expressed disbelief at both Treasury and the Reserve Bank’s housing forecasts, particularly recent ones which forecast serious stabilisation as a result of the Government’s suite of policy changes.

They also revealed that a new technical working group was secretly set up to review how house prices were forecast.

The bank blamed higher migration and lower mortgage rates for the misses.

Over the past decade, the key drivers of this deviation have been that migration has tended to turn out higher than forecast and mortgage interest rates have tended to be lower than our forecasts would imply, the bank wrote.

Both of these factors have contributed to house price inflation tending to turn out higher than anticipated over this period, it wrote.

National Party MP and housing spokeswoman Nicola Willis said it was very worrying that the Reserve Bank had been getting the figures wrong, given how big of a player it was in the housing market.

Anyone looking back in the past 12 months would see that the Reserve Bank’s incredible low interest rates have put a match to the tinderbox that is our housing shortage, Willis said.

She noted that the Reserve Bank had blamed mortgage rates for part of the miss, which was a pretty circular argument given the bank had a role in creating them.

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