“The housing market has been very much dancing to its own tune”
New Zealand’s mortgage rates have been hitting new “historic lows” almost month on month throughout the past few years, but forecasts suggest that, barring a major COVID-19 outbreak, the trajectory is going to be “firmly up” from here.
ASB chief economist Nick Tuffley said that while he is taking an approach of “never say never,” the shape of the global and domestic economy is looking increasingly favourable, and, as such, it is unlikely that rates will be dropping any further.
“It is looking very much like the direction of interest rates is going to be firmly up over time,” Tuffley told NZ Adviser.
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“We’ll never say they’ll never go back down – if we were to get a major outbreak of the pandemic here in New Zealand and we need to sustain the economy throughout a longer period of lockdown, that would change the picture quite considerably. But with the global economy on the mend and the vaccine rollout progressing around the world and very rapidly in some developed countries, we are increasingly seeing momentum pick up.”
“Here in New Zealand, we are still likely to have our borders substantially closed for a period of time, but domestic spending pressures look very strong and likely to propel significant parts of the economy along,” Tuffley explained.
“Tourism is really the sector that has been most affected but domestic spending has been strong and our goods exports are also performing very strongly, notwithstanding that we’ve been through a huge downturn and a huge global rebound.”
Tuffley said that while there are still pressures on the housing market when it comes to supply, higher interest rates will no doubt contribute to a cooling in price growth. However, he said homeowners should not expect to see the values of their properties decline.
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“The housing market has been very much dancing to its own tune,” Tuffley said. “There is far more demand than there is supply, and interest rates going up over the next year will just reinforce that the housing market will start to lose momentum.”
“It was already starting to lose that a bit before the government’s investor tax change announcements, and those changes will just reinforce that the pace of price gains will slow down,” he said.
“Having said that, we’re still expecting to see some decent price growth over this year as a whole, and it will likely slow to low single digits next year. But at this stage, we’re not forecasting any material price falls in the housing market.”
