Reserve Bank deals fatal blow to New Zealand house prices

By in New Zealand Economy

| 28 comments

The Reserve Bank of New Zealand (RBNZ) today hiked the official cash rate (OCR) by another 0.5% – the third consecutive double rate hike. This took the OCR to 2.5%, up from the record low 0.25% in August 2021.

In announcing the decision, the RBNZ proclaimed that it “is resolute in its commitment to ensure consumer price inflation returns to within the 1 to 3 percent target range”, and committed “to maintain its approach of briskly lifting the OCR until it is confident that monetary conditions are sufficient to constrain inflation expectations and bring consumer price inflation to within the target range”. 

Importantly, “the Committee remains broadly comfortable with the projected path of the OCR outlined in the recent May Monetary Policy Statement”, suggesting the RBNZ’s hawkish ‘forward track’ guidance of a 3.9% OCR by September 2023 remains in play.

In coming to its decision, the RBNZ noted that “spending and investment demand continues to outstrip supply capacity, with a broad range of indicators highlighting pervasive inflation pressures”. Employment also “remains above its maximum sustainable level and the Reserve Bank’s core inflation measures are around 4 percent”. And only “once aggregate supply and demand are more in balance” can “the OCR… return to a lower, more neutral, level”.

Finally, the RBNZ indicated that it wants New Zealand house prices to return to “sustainable levels”, suggesting it will keep hiking rates in order to assist in the adjustment:

Financial conditions have continued to tighten with mortgage rates rising in response to, and in anticipation of, increases to the Official Cash Rate (OCR). Asset prices, including house prices, continue to decline. Members agreed that the increase in mortgage interest rates will assist to bring house prices more in line with sustainable levels.

In summary, the RBNZ’s aggressive monetary tightening is set to continue, which will place further strong downward pressure on New Zealand house prices. Moreover, the RBNZ views falling house prices as a ‘good thing’ that will help to return valuations to more sustainable levels.

Unconventional Economist
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Comments

  4. Goldstandard1MEMBER

    Next stop: Australia.

    I love how housing bulls loved us following the NZRBA but now….. “Surely we won’t follow?” LOL

    Inflation is the biggest issue, then deflation.

  5. pfh007.comMEMBER

    A fatal blow?

    That seems quite mild and gentle.

    Only a week ago the NZRB would have been smashing, crushing, obliterating NZ house prices.

    Looks like everyone is calming down and getting used to the idea that the world doesn’t not revolve around asset price fluffing and the warm draft up the leg of your trousers also known as the wealth effect.

    • 2023HomelessMEMBER

      Why is Wellington such a standout for falls? As the centre of government, was it benefiting from COVID stimulus jobs? Or something else?

  7. Quantitative FleecingMEMBER

    This is a good thing. Housing is more affordable and people will be able to live better lives.

  8. MathiasMEMBER

    Aussies like New Zealanders. We’re like brothers and sisters.

    We have our arguments but for all intense and purpose, Australia just looks upon New Zealanders as ‘one of us’.

    Just dont ever challenge a New Zealander to a drinking competition ( my god they can drink ).

    Little New Zealand lady walks up to me in a bar, picks up my jug of beer and drinks the whole damn thing. I stepped back, gawked at her and she’s like, ” You purving at me? “. Im like, ” Nah. Im trying to work out how the hell such a small body can fit such a huge jug of beer in it. This defies the rules of physics. ” lol.

    Half drunk, went out to sit in the beach. This new zealand girl picks up a piece of worthless grass, starts weaving it in her hands and within moments, she hands me a little basket. Im like, ” To hell you didnt just do that? How… what? You made that from grass? Seriously? “. Showing me the stars of her ancestors and stuff. Maori culture that I didnt understand. Was amazing.

    New Zealanders. Strong hearts. Good people.

    Australians where good people once. I think we became a$$holes and lost our soul the day we tried to be like everyone else. We tried to be like the Americans and the Europeans, and forgot how to be Australian.

    Now we worship the god of Houses, Money and [email protected] For most Aussies, thats all there life is. Pretty sad, really.

  9. Hugh PavletichMEMBER

    NO MORE TOLERANCE for general inflation and housing inflation …as the IPSOS Issues Monitor make clear … the latest …

    17th Ipsos NZ Issues Monitor – June 2022

    https://www.ipsos.com/en-nz/17th-ipsos-nz-issues-monitor-june-2022

    Plenty more monetary tightening likely …

    Statistics NZ figures show little price relief in sight for supermarket shoppers … Rebecca Stevenson … Interest Co NZ

    https://www.interest.co.nz/business/116734/statistics-nz-figures-show-little-price-relief-sight-supermarket-shoppers

    Government faces 60-year debt blowout after building costs explode … Thomas Coughlan … New Zealand Herald

    https://www.nzherald.co.nz/nz/government-faces-60-year-debt-blowout-after-building-costs-explode/R7L54GYHNIEJD3Z6TQDFOYRJMI/

    Kiwis cashing up: Goodbye Auckland house prices, g’day Australia … Nikki Preston … OneRoof / New Zealand Herald

    https://www.oneroof.co.nz/news/kiwis-cashing-up-goodbye-auckland-house-prices-gday-australia-41809

  10. Hugh PavletichMEMBER

    New Zealand … latest from the best local authority area in NZ … Selwyn District Council … building out of the bubble …

    Up to 1000 new homes approved for outskirts of Christchurch despite city opposition … Liz McDonald and Amber Allott … Stuff New Zealand

    https://www.stuff.co.nz/the-press/news/129218213/up-to-1000-new-homes-approved-for-outskirts-of-christchurch-despite-city-opposition

    New housing in Selwyn district. About 10,500 new residential sections are either approved or going through the rezoning process in the district. … read more via hyperlink above …

    South Island’s biggest bulk retail centre planned for Rolleston (part of Selwyn County, Canterbury province) … Liz McDonald … Stuff New Zealand

    https://www.stuff.co.nz/business/property/129246076/south-islands-biggest-bulk-retail-centre-planned-for-rolleston

    While the residential consents per 1000 population per annum (standard industry measure … employed each month by Stats NZ) has now reached 10 / 1000 for New Zealand (likely the highest in the OECD … by a country mile !) Selwyn Council is a staggering 26 / 1000.

    Selwyn County is part of the province / region of Canterbury, which has a consent / approval rate of 13 / 1000 … the peak for New Zealand reached in the December year 1973 … near 50 years ago (refer historical graph Stats NZ article at bottom) …

    Building consents issued: May 2022

    https://www.stats.govt.nz/information-releases/building-consents-issued-may-2022/

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

    https://www.stats.govt.nz/news/rise-in-new-homes-consented-per-1000-residents

  11. PeterMEMBER

    The Committee remains broadly comfortable with the projected path of the OCR outlined in the recent May Monetary Policy Statement. Once aggregate supply and demand are more in balance, the OCR can then return to a lower, more neutral, level. 

    So let’s raise rates rapidly so we can crash the economy and, hey presto, cut rates.

    As Gump’s Mother said, ‘stupid is, as stupid does’

  12. Hugh PavletichMEMBER

    Reserve Bank makes it three in a row for 50 point OCR hikes; says it is ‘resolute’ in commitment to getting inflation down … David Hargreaves … Interest Co NZ

    https://www.interest.co.nz/bonds/116706/reserve-bank-makes-it-three-row-50-point-ocr-hikes-says-it-resolute-commitment-getting
    .
    .
    Check out current mortgage rates at Interest Co NZ …

    https://www.interest.co.nz/borrowing
    .
    .
    … and the clear structural definition of an affordable housing market …

    https://www.macrobusiness.com.au/2022/07/reserve-bank-overshoot-pummel-new-zealands-housing-market/#comment-4295045

    https://digitalfinanceanalytics.com/blog/tag/demographia/

    As sound money is restored with the switch from QE to QT in conjunction with the normalization of interest rates, some may need to learn fast just what a structurally sound and affordable housing market is.

    Bear in mind that the provision of affordable housing should be (if the politicians and planners hadn’t screwed it up) a straightforward formulaic business. … read more via hyperlink above …

  14. Hugh PavletichMEMBER

    China …

    Chinese Homebuyers Across 22 Cities Refuse to Pay Mortgages … Bloomberg
    (behind paywall)

    https://www.bloomberg.com/news/articles/2022-07-13/chinese-homebuyers-across-22-cities-refuse-to-pay-mortgages?srnd=premium-asia

    Across China, homebuyers are refusing to pay mortgages as property developers drag on construction projects, escalating the country’s real estate crisis and risks of bad debt for banks.

    Buyers of 35 projects across 22 cities have decided to stop paying mortgages as of July 12 due to project delays and a drop in real estate prices, Citigroup Inc. analysts led by Griffin Chan wrote in a research report distributed on Wednesday.

    The payment refusals underscore how the storm engulfing China’s property sector is now affecting the country’s middle class, posing a threat to social stability. Chinese banks already grappling with challenges from liquidity stress among developers now also have to brace for homebuyer defaults. …

    … A drop in home values hasn’t helped. Average selling prices of properties in nearby projects in 2022 were on average 15% lower than purchase costs in the past three years, according to Citigroup’s research. … read more via hyperlink above (behind paywall) …

  16. Hugh PavletichMEMBER

    Kiwis pay 25% more for groceries than Australians do, Finder survey shows … Brianna Mcilraith … Stuff NZ

    https://www.stuff.co.nz/business/129247364/kiwis-pay-25-more-for-groceries-than-australians-do-finder-survey-shows

    New Zealanders spend up to 25% more than Australians on grocery staples, analysis from comparison website Finder shows.

    Finder analysed the cost of 25 items at Countdown in New Zealand and Woolworths in Australia and found a $24 difference in a typical weekly grocery haul. Countdown is owned by Woolworths.

    In New Zealand dollars, the groceries amounted to $121 in New Zealand, compared to $97 in Australia, and were compared between 8am and 10am on March 31.

    The exchange rate used was A$1 to NZ$1.08, on March 31. … read more via hyperlink above …
    .
    .
    Nurse ‘ashamed and embarrassed’ to work in a health system in ‘tatters’ … Jennifer Eder … Stuff NZ

    https://www.stuff.co.nz/national/health/129258754/nurse-ashamed-and-embarrassed-to-work-in-a-health-system-in-tatters

  17. Hugh PavletichMEMBER

    It’s down, down, down for house prices according to the REINZ House Price Index …

    House prices are now declining in all main urban districts according to the latest REINZ sales data … Greg Ninness … Interest Co NZ

    https://www.interest.co.nz/property/116741/house-prices-are-now-declining-all-main-urban-districts-according-latest-reinz

    House prices are now declining throughout the country, even in regions such as Canterbury and Queenstown-Lakes where the chilling effects of the current market downturn have been slower to take hold.

    According to the Real Estate Institute of New Zealand’s House Price Index, prices across NZ were 5.4% lower in June than in March.

    Just as importantly, prices nationally are now just 0.7% higher than they were in June last year, meaning properties are likely to have lost virtually all of the spectacular capital gains they accumulated in the second half of last year.

    The REINZ’s House Price Index is probably the most reliable indicator of movements in residential property prices because it is compiled from sales made by REINZ members as they become unconditional, making it very timely, and it adjusts for movements in the composition of sales each month. … read more via hyperlink above …

    https://reinz.co.nz/residential-property-data-gallery