Following the Reserve Bank’s (RBNZ) announcement on Wednesday that it is increasing the Official Cash Rate (OCR) by 0.50% to 4.75% I thought you would be interested in knowing what impact I see this having now on the housing market and mortgage rates.
RBNZ documents show the central bank's monetary policy committee considered a record-equalling 0.75 percent hike but settled on 0.50 to account for the impact of Cyclone Gabrielle on parts of the North Island. In its public comments the RBNZ has indicated once again that a higher level of interest rates are needed to bring inflation back under control. Most banks are thus expecting that the OCR will exceed 5.15%+ Interest rates for borrowers look likely to continue to increase and more importantly remain higher for longer than was anticipated. We have seen some downward movement on interest rates by the banks recently, but this is due to loan volumes being well down compared to this time last year. The banks are very quiet.
As I have mentioned previously, we are going into a correction period when it comes to house prices. People who have owned and held on to their home for a seven to eight year period should still be sitting on large capital gains. Others who bought at the peak of the market and are being forced to sell through changing circumstances will be caught out. In some cases, they will have no choice but to sell at a loss. The latest REINZ house price stats show that Wellington as a whole region has experienced a 20%+ drop in house values over the last 12-month period. Many houses in central Wellington have rateable values which were set by the council in September 2021 that are well above what they are now worth today. A major real estate firm in Wellington recently had its worst sales result for January in 23 years which shows just how quiet the housing market is currently. Nationally for the 2022 calendar year house sales were the lowest total since 2010 and the third lowest figure in the past 30 years or so.
Housing affordability as I noted in November has now reached a critical turning point in New Zealand. While house prices have reduced, most no longer work with the current mortgage rates now advertised by banks. We are going to have to see further reductions happen to house prices for some level of affordability to return to the housing market. Many borrowers continue to be significantly impacted by the banks increasing their “test rates” which banks use to stress test new mortgages. While vendors may have a buyer prepared to pay them what they want for their property, ultimately the purchaser’s borrowing power with their bank will dictate what they can offer. Tighter credit conditions caused by the CCCFA changes continue to pose problems for many borrowers seeking finance to purchase a property.
Overall, the current summary of the housing market is that borrowers are worried about overpaying. Many are thus sitting waiting for house prices to fall before they purchase. Again, the house prices we have don’t work with current interest rates for the majority of people who require a home loan.
Please let me know if you would like to discuss the current mortgage rate you are on with your bank or are needing assistance with finance to purchase a new property.
Kind Regards
Simon
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