The Reserve Bank of New Zealand’s (RBNZ) aggressive interest rate hikes, which has lifted the official cash rate by 4.5% since October 2021, has sent mortgage rate soaring:
In turn, New Zealand house prices are crashing, down 17.6% nationally from their November 2021 peak, with Auckland down 22.4%:
The rise in mortgage costs and plummeting prices has sent investors packing.
The next chart plots investor mortgage commitments, which collapsed to a record low 914 in the month of January, one-fifth the number of mortgages originated at the pandemic peak:
Tony Alexander’s latest REINZ real estate agents’ survey showed that investors “have been absent since early-2021 and that reflects the return of LVRs, their strengthening for investors (40% deposit) in May, and tax changes from March that year”:
Likewise, a New Zealand Property Investors Federation (NZPIF) survey shows that the percentage of respondents who will or who are likely to sell their properties has increased from 21% in 2021 to 35% today.
“This is due to increasing costs which are not being covered by rents received, and also to the way landlords have been negatively targeted in recent times”, NZPIF president Sue Harrison said.
“The majority of Mum and Dad landlords have debt with their rental properties”.
“With higher interest rates and now this new tax [the end of mortgage interest deductibility], many are telling us they will struggle to keep their heads above water and will sell up”.
Leveraged property investment makes financial sense when interest rates are falling and prices are rising.
But when the opposite occurs, as is the case now, property investment is a financial black hole.
