The latest mortgage commitments data from the Reserve Bank of New Zealand (RBNZ) revealed that mortgage demand has collapsed, falling 27% in the year to January 2021, driven by a 51% decline in investor mortgage commitments:
New Zealand mortgage commitments have collapsed
This slump in mortgage demand has arisen following significant increases in both fixed and variable mortgage rates, driven in part by 0.75% of increases in the RBNZ’s official crash rate:
New Zealand mortgage rates are rising
The latest ASB housing confidence survey, which covered the three months to January, also collapsed to a 26-year low:
A net 28 per cent of respondents thought now was a bad time to buy a house in the latest ASB housing confidence survey… That was up from 23 per cent in the last survey, and was the most negative result since the bank’s records began. Only a net 7 per cent thought now was a good time to buy.
House price expectations faltered, too. The percentage of respondents who thought prices would rise over the coming year fell to a net 49 per cent.
In response, the Ardern Government recently stated that it was reviewing new lending laws designed to protect vulnerable borrowers from unscrupulous lower-tier lenders amid concerns they are shutting potential buyers out of the housing market.
The government has asked the Council of Financial Regulators to bring forward an investigation into whether lenders are implementing the new rules as intended, Commerce Minister David Clark said. That follows a report from credit bureau Centrix that just 30% of home-loan applications in December resulted in loans, down from 36% before the Credit Contracts and Consumer Finance Act took effect on Dec. 1.
“It may be that in the initial weeks of implementing the new CCCFA requirements there has been a decision to unduly err on the side of caution,” Clark said in a statement.
On Friday, the NZ Bankers’ Association also warned against proposed RBNZ debt-to-income ratio caps for mortgage borrowers, claiming it would further slow the market:
NZBA argues the combination of loan-to-value ratio (LVR) restrictions on low equity lending, December’s Credit Contracts and Consumer Finance Act (CCCFA) changes, rising interest rates and tax changes appear to be slowing housing lending growth…
NZBA has long been opposed to the RBNZ adding this macro-prudential tool to its toolkit.
According to the Real Estate Institute of New Zealand’s House Price Index, released yesterday, New Zealand house prices fell 2.3% over the February quarter, which follows 30%-plus price growth over the prior 18 months.
After such an epic price boom, a correction was always inevitable. But with interest rates now rising, credit availability tightening, and sentiment collapsing, the odds of a full blown house price crash have risen.
The Ardern Government and RBNZ will need to tread very carefully to engineer a soft landing for the nation’s housing market.
