Rates may have a cooling effect on price growth
New Zealanders with mortgages will be bracing themselves for increased interest rate costs over the coming year, but rising rates may be good news for first home buyers - particularly as the traditionally busy spring season begins.
With a 2% increase in properties coming on to the market compared to September of last year, the OCR moving to 0.50%, and phased changes to investor tax rules, a further slowdown in house price growth is looking increasingly likely.
Despite some “eye-watering” price increases in the Wellington region in September, Trade Me Property sales director Gavin Lloyd said that some relief may be on the way for first home buyers, as price growth shows signs of starting to ease.
“Spring is always a busy time for the property market,” Lloyd said. “It’s when the flowers are blooming, the sun starts shining again and properties are generally looking their best.
“However, with the Reserve Bank hiking the OCR, and many banks increasing their interest rates in response, this could take some heat out of the market which will come as welcome news for first-home buyers.”
Read more: How quickly will NZ mortgage rates rise?
The median price for property across New Zealand increased by over 25% in August according to REINZ statistics, with two of 16 regions reaching record median prices - however, chief executive Jen Baird said it was too early to tell whether government changes were having any impact.
Nonetheless, she said we can likely expect to see price increases for the next few months before we start to see any meaningful slowdown.
“The last two months have shown early indications that the rate of growth is starting to ease, however, it is too early to say whether this is the usual winter easing we would normally see or if the Government’s intervention in the market and signalled changes to the OCR are starting to take effect,” Baird said.
“Every region across New Zealand reached a record level in July, indicating the underlying value of property is holding strong and will likely do so for a few months yet.”
When it comes to the ultimate goal of the government’s approach, CoreLogic’s Kelvin Davidson said that few people want to see house prices fall - not even first home buyers, who have been making use of the tools available to them, and who have been taking an increased share of the market over the past year.
He said that the downsides to a crash would almost certainly outweigh the benefits to those yet to get on to the property ladder, and the ideal scenario would be a ‘sustained moderation’ in price growth until it is sitting below growth in wages.
“There’s probably a ‘too big to fail’ scenario going on for the whole economy, for the financial institutions, and for everyone with a vested interest in the property market,” Davidson said.
“The government has also said that they don’t want to see house prices fall, they just want the growth to moderate until it’s sitting below wage growth so that we can slowly start to restore affordability over time.”
“The financial stability issues that would be created by a house price crash would outweigh the benefits to a certain group of society, like aspiring first home buyers,” he explained.
“I think that’s reasonably well accepted, so I don’t think anybody wants to see a crash. But ‘sustained moderation’ was the phrase that Jacinda Ardern used, so over a period of time, we do want to see house moves below wage growth.”
“Our figures do show that there have been a lot of successful first home buyers, to the point where their share of the market over the last year to 18 months has been as high as ever - you’re looking at 24-25%,” he added.
“So they have been very successful, and that’s been done with the help of mum and dad, by using those speed limits to get in with a less than 20% deposit, using their KiwiSaver, compromising on location, etc.
“Owning a property is very much part of the Kiwi dream, and I think people will still aspire to that, no matter what kind of environment they’re operating in.”
