Red-hot housing market has finally come off the boil, according to mortgage lender

Economist identifies factors that have driven the changes

Red-hot housing market has finally come off the boil, according to mortgage lender

After months of red-hot activity, the New Zealand housing market has finally come off the boil, according to Bluestone Home Loans’ (Bluestone) recently launched New Zealand Property Cycle Indicator.

The indicator revealed a sharp decline in property market activity in the September 2021 quarter after two strong years as the national market moved into a moderating stage of the property cycle.

Auckland led the decline after an 18-month boom, with its share of new lending dropping to 41.1% in September, below the average of 47%.

Cameron Bagrie, consultant economist at Bluestone, said the recent lockdowns are not the only factors that impacted property market activity.

“Regulatory changes, shifts in banks’ risk tolerance, and rising interest rates are all playing a part in housing market activity across New Zealand as a whole moving from ‘strong’ to ‘moderating’ in the Bluestone Property Cycle Indicator,” Bagrie said.

Lending growth has also been surpassing income growth, which is ultimately unsustainable. As a result, lending growth is now easing, with fewer homes being sold.

“Some regions continue to be resilient for now – particularly Canterbury – but we’re now seeing  more signs of regions moving into a moderating stage of the property cycle, including the key market of Auckland,” Bagrie said.

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Bagrie explained that the Reserve Bank of New Zealand’s (RBNZ) decision to increase the official cash rate (OCR) to 0.75% last month means New Zealand is one of the few markets in the world to have increased interest rates this year.

“With the Reserve Bank targeting a neutral OCR of 2%, one and two-year fixed mortgage rates are set to be well above 4%. While higher interest rates will put some pressure on some borrowers, the opening position for households is one of solidity. Household debt servicing as a share of disposable income is under 6%, well below the 20-year average of 9.4%,” Bagrie added.

After the OCR announcement, economists updated their forecasts, expecting the figure to continue rising at a steady rate.

Focusing on Auckland, Kiwibank chief economist Jarrod Kerr said easing restrictions, a quick vaccination rollout, and the end of the Auckland border would all lift confidence and put the economy on track to rebound. However, COVID-19 remains unpredictable.