Fearful buyers flee plummeting New Zealand housing market

The Reserve Bank of New Zealand (RBNZ) has released data on mortgage finance commitments, which shows that buyer demand is collapsing fast.

In April 2022, only 13,939 mortgages were issued, which is the third lowest monthly total since the RBNZ began producing this series in 2014.

In dollar terms, mortgage commitments collapsed 30% in the year to April 2022 – a sharp turnaround from the 128% annual growth recorded in May 2021:

New Zealand mortgage commitments

Separate survey data released this month by the Real Estate Institute of New Zealand (REINZ) also showed that attendance at auctions and open homes has collapsed:

New Zealand home buyer demand

This slump in buyer demand follows 1.75% of interest rate hikes from the RBNZ since October 2021, which has lifted the official cash rate (OCR) to 2.0%.

There is worse to come, too, with the RBNZ’s ‘forward track’ guidance showing the OCR at 2.7% by September of this year and 3.4% by December, before peaking at 3.9% in June 2023.

These rate hikes are projected by the RBNZ to more than double mortgage rates from their pandemic lows to around 6%:

Projected mortgage rates

This month’s REINZ survey also showed that rising interest rates are by far the number one concern of home buyers:

Major concerns of New Zealand home buyers

Therefore, we should logically expect home buyer demand to collapse further as interest rates soar.

How bad it gets will depend on how aggressively the RBNZ tightens monetary policy. If the RBNZ follows through with its forward guidance, then New Zealand’s housing market faces a serious correction or crash.

Unconventional Economist

Comments

  1. kiwikarynMEMBER

    Fleeing is right. “In his May newsletter New Zealand economist Tony Alexander had a sobering revelation. Four out of 10 families selling their house and surveyed by real estate agents in the last month said they were selling to move to Australia.”
    Hope you guys have the Welcome Mat out.

    • Suggesting that migration retains its potential as the Aussie housing put option, we just don’t know the strike price……

    • In years gone by selling up in NZ wouldn’t have got you a house in Australia’s main centres. Certainly not an equivalent one.
      But thanks to the insanity of NZ house pricing the gap is closer now. So generally a good move.
      The only issue is the poor b#st#rd back in NZ that has just signed onto all that debt as the Ardern economy pumped up on wasted govt. spending looks to falter.

    • Jumping jack flash

      It will play out like something like 2007. Rates will increase until a bank or two goes bust and then they’ll lower them again like crazy, QEx and maybe a UBI or one of those credit window things will quickly follow.

      The problem is of course that when faced with inflation, even if it is absolutely necessary inflation like what we’re experiencing, the central banks’ formula is to raise interest rates. So they’ll play it by the book, follow the recipe, until they’re on the brink of collapse, and then they’ll panic and quickly resume the infinite debt inflation strategy like what happened by 2010.

      In my opinion, it looks like someone who knew how the new debt economies worked ordered the trillions of dollars of stimulus to create the inflation we all desperately needed to grow the debt to the next stage up, and prolong the banks’ economy of debt growth and spending.

      But then as soon as the stimulus left the building and started creating the inflation, someone else piped up and said “What?! Inflation!? We can’t have that, let’s raise interest rates!” and so that’s what we’re getting now until “sanity” prevails.

      Of course the whole thing is “insane-onomics”. A “sane” economy would be one where we primarily produce useful and valuable items and sell them to the world for profit, not one where we magick up trillions of debt dollars to pay for services and buy imported items from each other.

  2. From the horse’s mouth.

    While a gradual decline in house prices to more sustainable levels is desirable from a financial stability perspective, a sharp correction remains a plausible outcome

    https://www.rbnz.govt.nz/-/media/ReserveBank/Files/Publications/Financial%20stability%20reports/2022/fsr-may-22.pdf?revision=e9bb7add-0c4b-484e-be88-572b844cecc2

    About 10 days ago the RBNZ might have given us a hint of what they see as ‘plausible’, when they noted that for prices to return to pre-pandemic levels of 2019 a 48% fall would be needed to acheive that. Freudian Slip?

    • Jumping jack flash

      It was posted on here a little while ago that they wanted debt to correct to be more in line with productivity…
      If that’s the case then I expect the entire thing to fall over. There is probably at least about twice as much debt in the economy compared to actual baseline productivity of the NZ economy.

      And all that debt is sloshing around in the economy, being spent, and creating and maintaining demand levels, and jobs.

      Its not just NZ either. Pretty much every western economy is the same.

  3. TailorTrashMEMBER

    Hobbiton gets hobbled………

    Had to happen ….you can only live in a fantasy for
    so long …………

  4. Nope, surely you’ve got it all wrong Leith, it’s all about a miracle supply response, After all there was an incredible shortage only 3 months ago. Those poor Kiwi builders must be tired.

  5. Hugh PavletichMEMBER

    New Zealand Ports Performance Poor too (generally China and Middle East the best) … check this out …

    World Bank S&P 370 Ports Performance 2021

    https://thedocs.worldbank.org/en/doc/66e3aa5c3be4647addd01845ce353992-0190062022/original/Container-Port-Performance-Index-2021.pdf

    Biggest US Ports Rank as World’s Least Efficient for Containers … Bloomberg

    https://www.bloomberg.com/news/articles/2022-05-25/biggest-us-ports-rank-as-world-s-least-efficient-for-containers

  6. Hugh PavletichMEMBER

    Money changes everything: Kiwis quitting cities in search of low-cost life … Kevin Norquay and Olivia Caldwell … Stuff New Zealand
    … google search ‘housing affordability stuff new zealand’ …

    https://www.stuff.co.nz/national/300599130/money-changes-everything-kiwis-quitting-cities-in-search-of-lowcost-life

    Kiwis are waving goodbye to cities and going up country, in the search of an affordable home and lifestyle…. read more via hyperlink above …

    Currently New Zealand housing is about 9x annual household incomes … Australia about 7x and the USA about 4x. To rate as ‘affordable’ detached family housing needs to be 3x or below …

    Median Multiples – Interest.co.nz

    https://www.interest.co.nz/property/house-price-income-multiples#:~:text=Based%20on%20this%20official%20work,on%20the%20US%20housing%20market.

    Demographia International Housing Affordability: All Editions

    http://www.demographia.com/db-dhi-index.htm

    Demographia United States Housing Affordability Survey – 2021 Edition … Urban Reform Institute

    https://urbanreforminstitute.org/wp-content/uploads/2021/11/Demographia-United-States-Housing-Affordability-2021-Edition.pdf

    DEFINITION OF AN AFFORDABLE HOUSING MARKET (incorporated within latter comprehensive Demographia International Surveys … access via All Editions link above) …

    For metropolitan areas to rate as ‘affordable’ and ensure that housing bubbles are not triggered, housing prices should not exceed three times gross annual household earnings. To allow this to occur, new starter housing of an acceptable quality to the purchasers, with associated commercial and industrial development, must be allowed to be provided on the urban fringes at 2.5 times the gross annual median household income of that urban market (refer Demographia Survey Schedules for guidance).

    The critically important Development Ratios for this new fringe starter housing, should be 17 – 23% serviced lot / section cost – to balance the actual housing construction.

    Ideally through a normal building cycle, the Median Multiple should move from a Floor Multiple of 2.3, through a Swing Multiple of 2.5 to a Ceiling Multiple of 2.7 – to ensure maximum stability and optimal medium and long term performance of the residential construction sector.

    … so that today … different forms of dwellings should be about or below these Median Multiples to rate as ‘affordable’ …

    1. Standard detached housing should not cost any more than 3.0 times annual household incomes of specific metros ( refer Annual Demographia Surveys ; recent Glaeser & Gyourko paper ; Recent Reserve Bank of Australia paper ); Harvard JCHR Median Multiple Tables .
    2. New fringe starter house and land packages should cost around 2.5 times … at development ratios of 20% serviced lot and the balance construction.
    3. Apartment / townhouses should be around 2.0 times ( about 70% of detached … to illustrate refer Houston Association of Realtors Monthly Report ).
    4. Fringe manufactured house (prefab) and land packages should be around 1.5 times ( refer Leaky Homes And An Architect’s Musing’s | Scoop News March 2010 published Interest Co NZ as ‘Houston: We have a housing affordability problem’