High rates, resilient yet wary buyers
The Reserve Bank (RBNZ) has released an analysis on the subdued housing market, highlighting the effects of high interest rates and cautious buyer behavior in its November 2024 Financial Stability Report.
Amidst elevated borrowing costs, households remain resilient but hesitant to take on more debt as economic conditions remain challenging.
Interest rates and resilient households
While the housing market’s activity level remains muted, RBNZ underscored the importance of monitoring it closely. Housing represents more than half of New Zealand households’ wealth and over 60% of bank lending.
“Ensuring that we remain vigilant in monitoring these trends and market dynamics is essential for safeguarding the financial system and broader economy,” said Kerry Watt, RBNZ’s director of financial stability assessment and strategy.
Interest rates are still high by recent standards, impacting both buyer affordability and loan growth, which has been low over the past year.
Watt noted that house prices continue to test affordability, hovering around RBNZ’s upper range for sustainable levels. Despite easing in monetary policy, the restrained economic outlook has led many households to approach the market with caution.
High prices and limited lending pool
RBNZ stressed that, while the intense house price cycle of recent years showed rapid rises and falls, New Zealand’s financial institutions remained stable compared to other countries with similar housing market cycles.
“New Zealand’s recent house price cycle has been rapid compared to overseas examples,” Watt said, “yet our financial system has shown resilience, demonstrating the strength of our institutions and regulatory frameworks.”
This resilience is a key factor as banks navigate competitive pressures to attract a limited number of creditworthy borrowers. Even with eased monetary policies, households appear more cautious about new debt, reflecting continued uncertainty in the market’s immediate future.
Policy shifts aim to balance future demand and supply
Looking ahead, government initiatives aim to address long-term market imbalances by increasing supply responsiveness to housing demand.
RBNZ noted that enhancing housing availability could moderate future price cycles, reducing volatility and improving affordability over time.
Debt-to-income restrictions will also help moderate demand, reducing the likelihood of risk accumulation in the housing sector.
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