NZ property market remains in a slump as interest rates continue to rise

Guest post from Tony Alexander

Do we have any evidence in hand of the impact on the residential real estate market yet of the recent round of fixed mortgage rate increases undertaken by banks? Yes, we do. From my monthly survey of real estate agents, we can see that investors have run back into the hills. The level of withdrawal from the market is not as great as it was earlier in the year when credit was exceptionally hard to get. But the mild expressions of interest which were appearing in response to first home buyers showing some interest have disappeared anew.

What about first home buyers?

Overall, real estate agents do still say that they are seeing more first time buyers come back into the market looking to make a purchase. But the flow of fresh buyers coming through is much less strong than it was just before the interest rate increases went through.

Both results are validated by my monthly survey of mortgage advisors which is underway at the moment. We can see much more weakness in the level of interest in buying from investors. There has also been a sizeable decline in the level of inquiry coming through from first home buyers.

But like the survey of real estate agents there are still more mortgage advisors saying they are seeing more first home buyers than are seeing less.

So, overall what we can say is that the latest round of increases in interest rates has definitely had an impact in the real estate market.

I can also see that there has been an impact when it comes to household spending

In my monthly spending plans survey a net 28% of people have just said that they plan reducing their levels of spending on things generally over the next three to six months.

This is a deterioration from a net 15% planning cutbacks a month ago. The latest result in fact is the weakest on record. This is very important because it tells us that monetary policy is definitely gaining some traction in the economy.

That is, the interest rate rises which have occurred and especially the most recent round of increases are causing Kiwi householders to pull back on their spending. This is exactly what the Reserve Bank is aiming for when it raises interest rates and it is exactly the sort of thing which can eventually cause businesses to think twice before they put up prices even if their costs have gone up.

We are still some way from the Reserve Bank having confidence that inflation is going to head back towards 2%. And central bankers overseas are also noting that although they can see their policy tightenings having an impact they are not yet confident that the job is done.

That means monetary policy here and overseas is going to be tightened further and we cannot rule out another round of probably small increases in fixed interest rates from current levels. The way in which banks are now being openly attacked by politicians in New Zealand suggests that bankers will be far more hesitant in passing on borrowing cost increases to mortgage lending rates than might otherwise have been the case.

For the property market in New Zealand we are still facing into a period of weak sales and falling prices

But I remain of the view that we are in the endgame for this period of decline, but an actual turning upward of the housing market still looks quite a few months away. Maybe in autumn things will start improving with assistance from banks bit by bit easing up their lending criteria.

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