Real estate market peaks, but unemployment puts prices at risk

He estimated that average property value growth could slow to single digits in 2022, from nearly 30% in 2021, as rising interest rates drive up household costs, in addition to other bank loan restrictions.

“Homeowners are now facing a much reduced availability of low deposit loans, while CCCFA (Credit Contracts and Consumer Finance Act) regulations have caused much more disruption than expected.

“While any further rate hikes may be smaller and slower than those seen in the second half of 2021, we cannot ignore the fact that around 60% of existing loans need to be refinanced over the next 12 months.”

Davidson said all borrowers would face significant increases in mortgage rates, with a further rate hike to be announced when the Reserve Bank reviews the OCR in February.

“Anyone fixed for a year around April/May 2021 could potentially see their mortgage rate double when they are reviewed in the middle of this year, which can have a significant impact on household budgets,” he said.

In addition to higher interest charges, data from CoreLogic indicated that sales activity has slowed in response to recent changes to lending and tax rules.

“Towards the end of 2021, there were clearer signs of an easing in the balance between supply and demand in many parts of Aotearoa.

“Wellington and Dunedin have seen total listings increase quite significantly as new stock has flooded into the market, but trading has eased.”

Davidson said another theme for 2022 will be construction, in terms of production, capacity and cost growth.

He said it was clear mortgage investors’ appetite for buying property had waned, although there was still demand for new builds, which were exempt from certain tax changes and lending restrictions.

“Clearly, the LVR (loan to value bank lending restrictions) and tax system are now causing both homeowners and investors to seriously consider buying new construction.

“While this should give developers the confidence to continue building more new homes, new housing consents could decline a bit as the cost of construction becomes too high for some households.”

Davidson said economists will be watching unemployment closely, with any slowdown in the labor market posing an additional risk to house prices.