If you look at the housing data over the last 15 years it has been a bit of a rollercoaster. The boom period of the early 2000’s saw significant increases in the house prices which was sharply curtailed by the Global Financial Crisis in 2008. Following the GFC the RBNZ embarked on an expansionary monetary policy with near zero level interest rates which saw rebound in house prices up to 2016. However up to 2018 price increases start to plateau as the economy entered a phase of slower growth with average household debts reaching 162% of their disposable income and this debt-fuelled growth proved unsustainable.
Since the first lockdown in 2020 prices have escalated and this could be partly due to the fact that as well as demand outstripping supply, people have spent more income on refurbishing their house for a future sale. This came about by their inability to spend money on holidays or overseas trips. So why is there a forecast of decreasing and even negative house price increase? Below are some reasons:
- Increase in official cash rate (OCR) from the RBNZ will be passed onto consumers – higher mortgage rates – see graph below showing the correlation between interest rates and house prices.
- The tightening of lending regulations by the RBNZ – debt-to-income limits on mortgage lending.
- With the borders being closed population growth has decreased significantly and therefore less demand.
- There is less of a financial incentive for developers as material and labour costs have risen rapidly. Also a cooling housing market could lead to fewer projects.
Source: Westpac Economic Overview (Nov 2021)