Reserve Bank vows to crash New Zealand house prices

The Reserve Bank of New Zealand (RBNZ) has dealt a mortal blow to New Zealand’s housing bubble, hiking the official cash rate (OCR) for the second consecutive month by 0.5%.

The move has lifted the OCR to 2.0%, up from the record low 0.25% in August 2021.

In delivering its decision, the RBNZ stated that it needs to “act as a constraint on demand until there is a better match with New Zealand’s productive capacity”. It also noted that “expected increases in mortgage interest rates are likely to contribute to falls in house prices” and that “house prices are now headed toward a more sustainable level”.

ASB senior economist, Mike Jones, said the RBNZ was “more hawkish than expected”:

“We thought the RBNZ would came out swinging, but today’s statement was still more hawkish than expected. The OCR was lifted 50bps as we and the consensus expected. But the RBNZ’s new OCR forecast profile implies both a higher OCR peak than we’d expected, and a more rapid pace of tightening to get there”

Indeed, the RBNZ’s ‘forward track’ released with its Monetary Policy Statement was far more bullish than economists expected. It shows the OCR at 2.7% by September of this year, 3.4% by December, then 3.7% by March and peaking at 3.9% in June 2023.

This would send mortgage rates to around 6% – more than double their pandemic low:

Projected mortgage rates

In turn, the RBNZ expects “house prices to fall by about 14% by early 2024”:

Given New Zealand house prices are already down 5% from their peak nationally, the RBNZ’s forecast seems optimistic given its bullish OCR forecast.

Unconventional Economist

Comments

    • Goldstandard1MEMBER

      RBA are 100% following this time in line with the fed. Economy might be rooted by the time they get to 2% but by then crash will be in full flight.

  1. Strange EconomicsMEMBER

    2% should not scare any property specufestor in Oz (or retired LNP pollie with 3 investment places)
    Bring on 3% in Australia quick.
    They still have a 3% yield, and a 100% increase in last 3 years, and Neg Gearing refunds.
    Nothing to worry about –
    maybe prices drop 0.01% in a massive crash.panic. Oh No.
    Meanwhile US stocks drop 20% every few months.

    • 3%… mate… what you want is 8% interest rates with a 2% deeming rate for means testing the age pension….

      Imagine having $400k in terms deposits earning $32k p.a….

      Combined with the full age pension….

      $70k p.a. income after tax….

      they deserve it.

  2. So soon it will be a good time to put money into a savings/ term deposit in nz? Will/can Aussies do that?

  3. Let’s see how committed they are when the money supply is decreasing, unemployment is going up, credit and collateral is going to sh1t (along with the banks), government tax intake plummets, and all asset prices are decreasing.

    If they can maintain their path of lower house prices for a fairer society through all that, then I’ll give them some respect.

  4. UE, can you show where in any statement that the RNNZ vowes to crash the NZ property market?
    Just to help you vows = a solemn promise.

  5. Camden HavenMEMBER

    Are the marginal lenders the banks? Is shadow banking going to survive realistic pricing of risk?

    6% for prime grade mortgages government will need to buy the rest

  6. Hugh PavletichMEMBER

    When do central and local government intend to allow new affordable housing to be built by dealing with land supply and infrastructure debt financing … so the indirect blunt tools of monetary policy are not required to lead fighting unnecessary structural housing inflation ? …

    … Oddly … currently … irresponsible and reckless Centra Government has its foot firmly on the housing inflation accelerator … while the responsible Reserve Bank has its foot firmly on the housing inflation brake …

    … If central and local government were responsible and responsive with respect to the essential structural issues, the Reserve Bank of New Zealand would only need to participate in a mild and supportive role …

    RBNZ Steps Up Inflation Fight With Rate Hike … Bloomberg

    https://www.bloomberg.com/news/articles/2022-05-25/rbnz-steps-up-inflation-fight-with-second-half-point-rate-hike

    RBNZ Raises Cash Rate, Forecasts Higher Peak … Wall Street Journal

    https://www.wsj.com/articles/rbnz-raises-cash-rate-forecasts-higher-peak-11653445599

    … Important recent articles …

    World watching NZ housing market as Auckland labelled ‘canary in coal mine’ … Geraden Cann … Stuff New Zealand

    https://www.stuff.co.nz/business/128396590/world-watching-nz-housing-market-as-auckland-labelled-canary-in-coal-mine

    Wealth inequality debate is really an argument over land … Dileepa Fonseka OPINION … Stuff New Zealand

    https://www.stuff.co.nz/business/128519952/wealth-inequality-debate-is-really-an-argument-over-land

  7. DingwallMEMBER

    Needs a crisis …. bring it on………. and here too though we need commodities to burn at the same time/
    NZ doesn’t have the luck of rocks to pull it out the the sh!t randomly and has gone all in on housing for their economy. They built the house of cards so they can watch it tumble. Sheer stupidity!

    • Nice words, not, who wants a crisis, provide some constructive ideas, easy to blame the piper, harder to provide a solution to fix the problem ( i dont see a problem, markets make the market)

      • DingwallMEMBER

        It is an unhealthy, ersatz economy. The only way to break it is a crisis because the d!ckheads in charge keep it on life support.

      • Plenty of near homeless & homeless folk would love a crisis as they’re already living it. 170 people inspecting a run down dump suburban Geelong at $420 per week. Stink of cat pi$$ not unusual..many most would not let their well housed dog sleep in let alone adult children but for those not bought into mortgage death woops debt 50 -70% income on rent not unusual. ‘Owners’ on the other hand indented to bank & cannot let at market value therefore holding out for a group of students to pool their $350.per week bed budget while everyone else goes Hunger sorry Housing Games to battle out for the cheapest $h1thole in which to make a home minus garage, minus bath cos renovated, minus carpet cos renovated, minus heater cos dangerous [email protected]: bring on a crisis

        • TailorTrashMEMBER

          A voice from the coal face …….welcome back ………

          Labor/ “ Labour “ are in power now …let’s see what they do to address this bedrock issue ………housing our children is the issue of our times ……….watch and learn ………

    • Jumping jack flash

      If you think rocks will save Australia then you’re mistaken.

      Global demand will crash and nobody will need our rocks. Global demand is only what it is right now because of global debt spending. Everything is debt.

  8. Hugh PavletichMEMBER

    The great OE exodus: Is there one good reason why young Kiwis should stay? … OPINION Dileepa Fonseka … Stuff New Zealand

    https://www.stuff.co.nz/opinion/128736043/the-great-oe-exodus-is-there-one-good-reason-why-young-kiwis-should-stay?cid=app-iPad

    Dileepa Fonseka is a Stuff writer on business and politics.

    OPINION: There are few things more embarrassing than being the last person left dancing at a party after the music stops and everyone has moved on.

    A lot of New Zealanders are going through this right now as our social calendars fill up with leaving drinks, Facebook feeds are flooded with pictures of people at airports, and we add our signatures to yet another farewell card.

    The spin on this is always that New Zealanders leaving the country are part of an ancient tradition of youngsters going to get blind drunk in London before sobering up and finding a proper job on Lambton Quay. … read more via hyperlink above …

    • Aussies Kiwi matesMEMBER

      But its true, no cliche. . All the young kiwi grads I hung out with in London returned to Auckland after their lost years,
      for jobs and start families.

      • kiwikarynMEMBER

        During which years? Lots of people came back under the last National government, due to the “rockstar” economy and the feeling that things in NZ were finally looking up. I was one of them. Under the prior Helen Clark (Labour) government people fled and didnt return, and now under Jacinda Ardern things are looking pretty grim here again. Its not just the economy either, its crime rates and the racial division that Labour is deliberately fomenting. I dont think many will be returning this time.

    • I, and so many other kiwis I know, successful middle age business people, have left and I’m guessing as their kids become Aussies, or Brits, or blend into other societies, they aren’t going back. And a 15% fall in house prices will do nothing to change that.

  9. In the words of the immortal Archer: ‘Please stop! I can only get so erect!’

  10. Raising central bank rates to 2% is not the problem, central banks should never go below 2%. Who would have known that making money free would be a bad idea. Inflation has finally come to restore sanity to the Australian housing market, but a lot of recent FHBs and highly leveraged investors will loose the lot.

    • Jumping jack flash

      Debt is never and can never be free but you’re right, they made it too cheap, starting in the 2000s and late 90s when they started the same interest rate manipulation that is biting us in the proverbial today. Like so many predicted would happen.

  11. kiwikarynMEMBER

    Mortgage rates to 6%??? LOL. The “special” 2 year fixed rate is already at 5.19% (Westpac) and that’s before this OCR raise. Try 7.5% mortgage rates.

  12. Jumping jack flash

    “…constraint on demand until there is a better match with New Zealand’s productive capacity”

    Oh, those bankers. The bastions of righteousness and prudence!

    All of a sudden…

    Whatever would we do without them? We’d be lost, like little debt-soaked sheep… never mind where the debt came from in the first place and how it got into everyone’s hands.

    Matching debt demand to levels of productivity?? Well if they really mean that then it is actually all over folks.

  13. Hugh PavletichMEMBER

    Orr Says RBNZ to Hike at Pace to Contain Inflation Expectations … Bloomberg

    https://www.bloomberg.com/news/articles/2022-05-26/orr-says-rbnz-to-hike-at-pace-to-contain-inflation-expectations

    Shock and Orr: Why the RBNZ has no regrets raising rates … OPINION Jonathan Shapiro … Australian Financial Review

    https://www.afr.com/markets/debt-markets/shock-and-orr-why-the-rbnz-has-no-regrets-raising-rates-20220526-p5aoqv

    Latest Reserve Bank figures show the average-sized new mortgage hit a new record high of over $400,000 in April – while far fewer people were scrambling to borrow … David Hargreaves … Interest Co NZ

    https://www.interest.co.nz/property/116101/latest-reserve-bank-figures-show-average-sized-new-mortgage-hit-new-record-high

    The number of mortgages issued in April plummeted – while the average size of them still continued to increase, reaching a record high, the latest monthly mortgage figures just released by the Reserve Bank show.

    The latest figures show that in April 2022 just 13,939 mortgages were issued, which is the third-lowest figure for a month since the RBNZ started producing this data series in 2014. The April figure was down from the well over 18,0000 mortgages issued in March 2022.

    The only lower figures were recorded in April 2020 – when New Zealand was to all intents and purposes shut – and in January of this year when the market appeared to have temporarily frozen completely in the wake of new changes to the credit rules. … read more via hyperlink above …

    Twenty four hours after the RBNZ hiked the Official Cash Rate by 50 basis points, no bank has announced any rate change … David Chaston … Interest Co NZ

    https://www.interest.co.nz/personal-finance/116105/twenty-four-hours-after-rbnz-hiked-official-cash-rate-50-basis-points-no

  14. Hugh PavletichMEMBER

    FURTHER UPDATE … UPDATE … New Zealand’s bursting housing bubble: Do consider also new supply …

    https://www.macrobusiness.com.au/2022/05/reserve-bank-vows-to-crash-new-zealand-house-prices/#comment-4278523

    https://www.macrobusiness.com.au/2022/05/losses-snowball-across-new-zealands-housing-market/#comment-4278042

    Australia and New Zealand new dwelling approvals / consents adjusted for respective population bases … New Zealand outstrips Australia by wide margin of 78 % for the month of March 2022.

    For the month of March 2022 the Australian Bureau of Statistics reports 15,183 new dwelling approvals (x12 annualized 182,196) … Statistics New Zealand reports 5.303 (x12 annualized 63,636)

    The current population clock for Australia is 25.884 million … New Zealand 5.164 million.

    Specifically for the month of March … the consent rate per 1000 population per annum for Australia was 7.04 … New Zealand 12.52.

    For the month of March on aa appropriate population adjusted basis, New Zealand’s new dwelling consents / approvals were 78 % ahead of Australia’s …

    Building Approvals, Australia March 2022 … Australian Bureau of Statistics

    Building consents issued: March 2022 … Stats New Zealand

    Rise in new homes consented per 1,000 residents … Statistics New Zealand

    https://www.macrobusiness.com.au/2022/05/macro-afternoon-1359/#comment-4276257

    Australia … The residential building crisis …

    ‘A very major correction’ under way as building industry faces crisis … Josh Gordon, Jackson Graham, Tawar Razaghi and Elizabeth Redman … The Sydney Morning Herald

    Metricon: The Tip Of The Property Storm Iceberg? … Martin North … Digital Finance Analytics