Property market hits peak

PHOTO: Despite the price pressure, CoreLogic chief property economist Kelvin Davidson says anyone hanging out for a major bargain may be disappointed. File image Photo: RNZ / Angus Dreaver

The property market has peaked according to latest market research, with any increase in the rate of unemployment likely to put further pressure on price growth.

CoreLogic NZ’s latest property market and economic update said the total value of residential real estate reached $1.72 trillion in the three months ended 2021, compared with $1.35t the year earlier.

OCR increases and rising home loan interest rates mean households are going to have to adjust

Mortgages were secured against 19 percent of that value, while household equity accounted for the balance of 81 percent.

Despite the high rate of homeowner-equity, CoreLogic chief property economist Kelvin Davidson said there was reason for caution as the level of household debt was high relative to income.

“We suspect that by mid-2022 the balance of power could tip towards buyers,” Davidson said, adding that much depended on continued low unemployment and wage growth.

“To some extent the debt has only been sustainable recently because of low mortgage rates.”

Despite the price pressure, Davidson said anyone hanging out for a major bargain may be disappointed.

“With unemployment still low, the story is more about much slower growth in prices rather than meaningful falls.”

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

“Owner-occupiers now face a much smaller availability of low-deposit loans, while the CCCFA (Credit Contracts and Consumer Finance Act) regulations have caused far more disruption than expected.

“While any further rate rises could be smaller and slower than those experienced in the second half of 2021, we can’t overlook the fact that about 60 percent of existing loans need to be refinanced within the next 12 months.”