Yesterday, I reported that mortgage demand has plummeted in New Zealand in response to the Reserve Bank of New Zealand’s (RBNZ) aggressive interest rate hikes.
As illustrated in the next chart, new mortgage commitments fell 33% in the year to September, with the rolling annual dollar value of mortgages advanced down by around one quarter:
The latest consumer confidence survey from ANZ-Roy Morgan also shows that house price inflation expectations have collapsed to their lowest level since the depths of the pandemic, suggesting Kiwis remain highly bearish on house prices:
The “good time to buy a major household item” indicator – which tracks most closely with consumer spending – has also collapsed to its lowest level in decades:
The RBNZ’s monetary tightening is among the most aggressive in the world, and it has committed to continue hiking rates aggressively in order to tame runaway inflation:
Already one and two year fixed mortgage rates, which dominate the New Zealand mortgage market, have soared to more than double their pandemic lows:
Given around one quarter of New Zealand mortgages are due to come up for re-pricing by the end of this year and a further quarter by mid-2023, Kiwi households face a sharp lift in mortgage repayments:
The upshot is that New Zealand’s economy faces a battering as house prices (which are already down nearly 13% from peak) combine with sharply rising mortgage repayments to slash household consumption – the economy’s biggest driver.
The timing couldn’t be worse for Prime Minister Jacinda Ardern, who will head to the polls late next year with the economy on its knees and facing millions of angry voters. She is ‘dead Prime Minister walking’.
