Former prime minister says two things will have to happen for the property market to crash
John Key, former prime minister and ANZ NZ chairman, has revealed what he thinks would have to happen for the New Zealand housing market to really crash, as the country faces skyrocketing cost of living, red-hot inflation, and declining house prices.
The Reserve Bank hiked the OCR to 4.25% in its November meeting in an effort to curb inflation, which was at an annual rate of 7.2% in the September quarter. House prices, meanwhile, have dropped a whopping 7.5% annually due to inflation and rising mortgage costs, according to latest REINZ figures.
In a Facebook video, Key said one reason the housing market was unlikely to crash was that despite the substantial rise in interest rates and slight drop in inflation, many homeowners still haven’t rolled over to the higher rates, Newshub reported.
He said that as people roll over, the need for further aggressive hikes could be reduced.
“One thing that’s really interesting at ANZ, of our customers who borrowed for a home loan up until about a few weeks ago, 57% of them still had a mortgage that either had a two in front of it or three in front of it,” Key said. “So, they’re going to have to roll off very soon in the next six months and when they roll off, they’re going to roll off onto something with a six in front of it, maybe even higher. So, you can’t tell me that isn’t going to have a dramatic impact on people’s capacity to go out and buy everything from pizzas to a new frock.”
And even if New Zealand does go into a recession, which many expect to happen in 2023, Key said the property market was unlikely to crash.
“When we look at recessions, we look at property at ANZ and there are only two things we worry about – do people have a job and how much are they paying for the money?” he said. “At the moment unemployment’s down at 3%. Well, when I came in as prime minister in 2008, the first thing Treasury told me was they expected unemployment to peak at over 10%… Now, I don’t think you will see anything like that in New Zealand going forward. I think maybe unemployment rises, maybe it goes to 3.5 or 3.7, maybe a few people get laid off, but I don't think it's anything like that [10%].”
So, what according to Key were the two fairly big things that would have to happen for the housing market to really crash? It was for the interest rates to skyrocket and the job market to completely fall apart.
“To really, really, really get the property market to really crack you’d have to have interest rates going through the roof from here and you’d have to have labour markets going through the floor,” he told Newshub. “We do all of that stress testing of our balance sheet at ANZ and even then, we see property prices down obviously from where they are – and pretty significantly down – but that's Armageddon.”
Do you think the New Zealand housing market will really crash? Share your views in the comments section below.
