We’re unlikely to see house price drops this year – or the next, says Kiwibank senior economist Jeremy Couchman.

In Kiwibank’s First View report, the bank predicts double-digit price gains well into 2021.

But property investors shouldn’t get too excited.

The bank says house price growth is expected to slow from around the middle of next year.

This is due to the Reserve Bank likely reinstating loan-to-value (LVR) restrictions in March. Banks will rein in lending from now on, the report suggests.

LVR restrictions will take the investor-related froth off the top of the market, the report says.

Also, unemployment is casting a shadow.

“The upcoming summer months will be challenging and is a big reason why we expect the labour market to deteriorate further.,” said the report.

“Our border remains firmly shut, and firms reliant on the swell of visitor arrivals over summer will struggle to fill the void. We’re expecting the unemployment rate to peak at about 6.5 per cent.

“It’s a rate well below the scary double digits we were thinking initially. But the peak has been pushed out a couple of quarters.”

The bank says a return to full employment will take even longer, and it predicts that inflation will be sluggish.

“A big reason for this is a strengthening Kiwi dollar. The dollar has recently broken higher, now trading around 70 cents.

“That’s a massive 20 per cent turnaround from the lows back in March. A strong dollar, however, is a drag on the recovery.”