Taken from Tea with Tony | July 2023
In this blog, independent economist Tony Alexander gives the latest update on the housing market and interest rates, looks at household consumption, and breakdowns the Commerce Commission’s bank investigation.
Plus, is it still a buyers’ market?
The real estate market and interest rates
According to Tony, residential house sales have seen a 19% increase in the three months leading up to May (compared to three months prior). Tony says while average prices have not risen, they have stabilised -indicating the bottoming out of the housing market.
Tony now questions, where to from here?
Tony notes minor increases in bank costs, for one to five-year fixed interest rates, ranging from 0.1% to 0.15% – driven by international factors, such as stronger-than-expected job numbers in Australia, the United Kingdom, and the United States. Central bankers in these countries have warned about the need to tighten monetary policy, leading to expectations of further rate rises.
Tony explains New Zealand banks have been doing a little bit of catch-up to pass on rising costs – resulting in fixed mortgage rates increases.
However, Tony agrees (with other economists) interest rates have now peaked.
According to Tony, his latest surveys of real estate agents show increased attendance at open homes, up 38% (from two months prior). Auction attendance has also increased from – 18% to 18%.
Fear of missing out (FOMO) has increased to 19% (from 9% month prior), showing a growing urgency to purchase. Additionally, Fear of overpaying (FOOP) has decreased to 40% (from 68% two months prior), suggesting buyers are becoming less concerned about price declines.
The housing market upside
While many expect housing market activity to remain low over the next few years, Tony disagrees and reasons there are a number of frustrated buyers sitting on the sidelines that will move back into the market.
Tony expects a period of robust growth in house prices as we head into 2024.
Is it still a buyer’s market?
While New Zealand remains in a buyer’s market overall, Auckland stands out as a seller’s market, with a net 7-8% of agents indicating stronger negotiating power for sellers.
Tony predicts Auckland is likely to outperform other regions due to its relatively low prices (by long-term trends) and the ongoing migration boom, which attracts migrants to larger cities.
While Tony’s surveys show easier access to finance with changes to the Loan to Value Ratio (LVR) and an easing of the Credit, Contracts & Consumer Finance Act (CCCFA), Tony notes with a test rate of 9/9.5% (at the time of filming) many Kiwis don’t currently qualify to take out or extend their mortgage.
Tony explains household consumption is an area of concern for the Reserve Bank when looking at interest rates and notes retail spending has declined, indicating a pullback in consumer spending.
Tony believes rising interest rates, alongside falling house prices and a reduction in pandemic-induced binge spending are contributing to restraint in spending. And, while job security remains stable, Tony expects retailers to face challenges throughout the year with approximately 150 billion worth of mortgages on fixed rates yet to roll over onto higher interest rates.
The Commerce Commission Investigation
Looking at the investigation into the banking sector profit by the Commerce Commission, Tony cautions it’s unlikely to impact retail interest rates (the rates you pay) which are determined by the Reserve Bank’s monetary policy decisions (OCR) to influence inflation levels.
Tony also notes banks in New Zealand are already heavily regulated and face significant costs to meet their regulatory requirements, customer expectations and reduce exposure to security risk and scams.
*Please note – Tony Alexander is an independent economist. His views are his own and not necessarily shared by NZHL or vice versa. Tea with Tony is brought to you by NZHL in a sponsored capacity.