Low mortgage rates have played a role in the current market heat
The New Zealand housing market has remained red hot as demand soars, spurred by low mortgage rates. However, ANZ economists believe that the current heat in the market may not last much longer.
ANZ economists said in the bank’s latest New Zealand Property Focus report that housing demand has remained strong in November due to low mortgage rates and a speculative dynamic. House sales have also recovered from the estimated losses during the lockdown, and now a “perfect storm” of increasing house prices is at work.
“The housing market remained very hot into spring. Lower mortgage rates have played a role, but there also appears to be a degree of ‘catch-up’ that has contributed to recent eye-watering strength,” ANZ economists said in the report.
However, the economists warned that the heat in the market is not likely to last despite the support of low-interest rates and abundant liquidity.
“Low mortgage rates will provide ongoing support, but the market appears out of step with fundamentals. The RBNZ is planning to re-impose LVR restrictions, and banks have already signalled a tightening in credit conditions for investors. The outlook is uncertain, but, on balance, we see some cooling in the market in time,” they said.
“Population growth is very weak, new builds are coming available, and income strains are likely to increase as the impact of the closed border on the economy becomes clear and direct fiscal support wears off.”
They added that those who aren’t facing financial struggles would most likely face affordability constraints at some point, even at low-interest rates.
“Given these factors, we think that heat from the market will abate in time, though the support of low-interest rates and abundant liquidity will provide a continuing offset, particularly with the RBNZ having introduced the Funding for Lending Programme (FLP) and further policy easing expected,” they said.
