NZ property prices to grow by less than 5 per cent

New Zealand property price growth is likely to dip below five per cent this year as rising interest rates start to bite according to an industry expert.

This week, the Reserve Bank of New Zealand (RBNZ) hiked the official cash rate to 1 per cent, an increase of 0.25 per cent, which is expected to slow housing demand.

The official cash rate (OCR) in New Zealand is now at the same level it was prior to Covid in February 2020.

New Zealand property prices have seen significant growth in the past 12 months, fuelled by record low interest rates and tight supply, with values increasing by more than 25 per cent in 2021 alone.

CoreLogic NZ, Chief Property Economist, Kelvin Davidson said he expects property price growth to be less than five per cent this year.

“There are already signs that higher mortgage rates, combined with intense affordability pressures and tighter credit availability, are cooling sales volumes and the pace of value growth,” Mr Davidson said.

“Although mortgage rates may not shoot up quite like they did last year, they’ve undoubtedly still got further to rise.”

Mr Davidson notes that a large percentage of borrowers are facing higher interest payments.

“Given that more than 50 per cent of NZ mortgages are rolling off a fixed interest period this year, and with another 10 per cent or so on floating rates, there’s a high proportion of borrowers due to face increased interest costs soon,” he said.

Rising inflation in New Zealand has started to become an issue for the RBNZ which has been suggesting interest rates could rise to as much as 3 per cent this cycle, up from their previous estimate of 2.5 per cent.

The latest CPI data from New Zealand shows that inflation is now sitting at 5.9 per cent, with unemployment dropping to 3.2 per cent.

In some good news for New Zealand homeowners, Mr Davidson said some rate rises on fixed rate mortgages have already been factored in.

“In terms of mortgage rates themselves, there’s been a flatter patch lately, after the sharp increases we saw last year,” he said.

“In other words, the future expectations for tighter monetary policy have already been ‘priced in’ to current mortgage rates to some degree.

“This suggests that any further increases in mortgage rates could well be slower and/or smaller than what we’ve already seen.”

Mr Davidson also notes the RBNZ will be watching the unemployment rate closely before hiking further.

“We’re just a little wary of casually assuming that the OCR will go up so surely and steadily,” he said.

“After all, there has to be a risk of more business insolvencies this year, and the resulting loss of jobs could feed back into weaker economic growth and hence a lower/slower path for the OCR – and also potentially mortgage interest rates too.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.