WHERE TO NOW, REAL ESTATE MARKET?

Though the days are getting sunnier, there are some dark clouds forming at the property market horizon. The recent interest rate (OCR) hikes by the Reserve Bank have quickly flowed through to mortgage rates, hurting those who were enticed into the market - and into paying top dollar - by a record low cost of borrowing in recent years. That's going to change. With the OCR now at 0.75%, which already translates into >5% five-year mortgage rates, the RBNZ’s expectation of a 2.5% OCR by the end of 2022 (i.e., more than triple of today's) will likely mean substantial spikes in home mortgage rates in the next few years.

You'd expect this trend to take the appetite, and ability, out of the market to continue to pay premium prices for homes, unless there is a substantial growth on the demand side. Of course, with New Zealand’s borders reopening, net migration is likely to increase, meaning more new people will need more homes, though probably in the main centres. On the flipside, property investors have seen house values increase faster than the rents they can charge, meaning reduced returns on their investment and a higher motivation to sell rather than hold, let alone buy, property.

A recent article in Stuff quoted ‘mega-landlord’ Matthew Ryan predicting up to a 20% decline in property prices, driven by tighter bank lending rules making it harder for first-home buyers to get onto the property ladder. With existing home owners not being able to sell to these buyers, they themselves won’t be able to upgrade their homes, leading to a domino effect ‘down’ the ladder that may start to depress prices throughout the entire market. While the "20%" prediction is probably much too pessimistic, some slump can already be witnessed in the larger centres such as Wellington; it has not arrived here in Wānaka yet, at least not for higher-priced homes.

So, after the unprecedented rises in house prices over the last 12 months, we are entering a period of substantial uncertainty, with two ‘camps’ of home owners emerging – those who want to lock in the gains achieved to date and selling, and those who are expecting the prices to continue to climb in spite of economic headwinds and government intervention.