ANZ economists see a cool change coming for the housing market

Property

ANZ report says the border closure means housing supply is catching up with demand but there's still uncertainty over future immigration settings

25th May 21, 1:09pm by Greg Ninness

Photo by Jeremy Bishop on Unsplash

ANZ's latest report on the residential property market suggests the housing shortage is starting to decline, but whether that continues depends on immigration settings once the border is reopened.

"The closed border means the New Zealand housing market is in the rare position of being able to build enough houses to keep up with new demand," ANZ's economists say in their latest Property Focus report. ANZ is the country's biggest home loan lender with over $100 billion of residential mortgage exposure at March 31.

The ANZ economists also warn that disruption to international supply chains is aggravating capacity pressures and pushing up costs in the construction sector, which could put a handbrake on the supply of new homes.

"On net, it looks like New Zealand will be able to chip away at the housing shortage pretty quickly over 2021," the report says.

"But it's important to note that this is largely due to the border closure, as the the largest source of demand for new housing has been completely cut off.

"This brief respite will not last unless serious changes to immigration policy are made."

The report also says that the recent strong demand for homes, which has dramatically increased prices, appears close to peaking.

"Credit and affordability constraints are biting, mortgage rates appear to have bottomed out, loan-to-valuation restrictions are back and bigger than before, building consents are at historical highs and population growth is being severely curtailed by the border closure," it says.

"In other words, the demand pulse is probably close to peaking and supply is catching up, although there's still a long way to go."

The report is picking "a significant moderation in house price inflation" over 2021, and that the Reserve Bank will start raising interest rates from August next year, with the Official Cash Rate (OCR) rising from the current 0.25% to 1.25% by the end of 2023.

"The higher OCR is expected to be fully passed through to mortgage rates," the report says.

"We think interest rates have bottomed out for now and with OCR hikes pencilled in for August 2022, we're expecting mortgage rates to start lifting in the not too distant future.

"This should see demand for houses fall significantly.

"With prices so high, even a small rise in mortgage rates will significantly increase the debt servicing cost of buying a house, as well as making repayments much harder to afford."

That is expected to have a cooling effect on the market.

"With mortgage rates being such an important driver of house prices, (especially when prices are so high relative to incomes), we expect this to result in a decent headwind for house prices." the report said.

The full Property Focus report is available here.

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45 Comments

by Independent_Observer | 25th May 21, 1:13pm 1621905230

So up another 25% the next 12 months then?

by Dave Moderato | 25th May 21, 1:35pm 1621906531

Only 22.5% "Thanks, Labour!"

by Brock Landers | 25th May 21, 1:19pm 1621905570

These "bank economists" find the entrails they read saying something different every month.

At least they managed to use their double digit IQ to figure out that prices are just a tad high.

by Jay Lim | 25th May 21, 10:06pm 1621937174

The bank analyst predicted 15% fall for the year 2020 due to the pandemic around same time last year.

by Passerby | 25th May 21, 1:26pm 1621905961

As I have seen over the last year, never listen to an economist. They just really suck at predictions. A psychic will probably be more accurate than this lot? Didn’t they predict 15-25% fall in house prices last year this time?

by Dave Moderato | 25th May 21, 1:37pm 1621906662

The ad hoc housing policies of this Labour Govt are effectively reducing the number of available rentals in the existing stock.

by house hunter | 25th May 21, 2:17pm 1621909074

What's happening to those rentals?

by sadr001 | 25th May 21, 2:39pm 1621910343

Multiple are being bulldozed to build McMansions with pools & tennis courts because that is where all the margin is these days.

by Advisor | 25th May 21, 1:48pm 1621907293

Bank economists use these 'predictions' to openly coerce authorities into protecting the financial interests of their employers.

With recent releases, they seem to have hedged all their bets by instilling fear among our central banks and policymakers of the economic upheaval resulting from future OCR hikes, introduction of CGT, IO loan restriction, reducing net migration, etc.

by printer8 | 25th May 21, 1:57pm 1621907844

Passerby
Naïve comment - but one that no doubt gives you a much needed sense of being clever.
Economic forecasting is an opinion and not an exact science. Economic forecasters would be the first to acknowledge this as variables change: twelve months ago, the extent of Covid and RBNZ actions were unknown. From memory the expectations RBNZ and bank economists were in the range of a fall of 10 to 15% which were considerably a lot closer than the 50% plus fall many on this site were claiming.
If you have any experience you will know that successful investors read a range of opinions, critically evaluate that information and come to their own conclusions. Clearly you don't bother to do this so so seemingly don't fall into this group.
To "never listen to an economist" is burying your head in the sand: so, go for it and if not beyond you, in future don't even bother wasting time opening articles such as this???
Cheers

by Passerby | 25th May 21, 2:23pm 1621909410

Printer8, as you have rightly pointed out I am not a property investor and I don’t aspire to be one.

If my comments are beyond your brain power to handle, why bother wasting time in replying to messages like mine. Surely you have better work to go and invest in some property.

While you are at it, take your superiority complex to any place where the sun don’t shine. Move along, scroll past boomer.

by Independent_Observer | 25th May 21, 2:32pm 1621909943

Don't mind P8 - he's in love with bank economists for some reason. Perhaps he failed is uni exams and instead of being a bank economist, did the next best thing and joined the property investor association and now lives his life in a state of recency and confirmation bias but is unwilling to admit it.

by company of heroes | 25th May 21, 2:43pm 1621910628

They are not speaking to you to give you advice, they are releasing these information to inform their clients and potential clients the direction that bank will head to for the coming seasons.

by Ocelot | 26th May 21, 1:16pm 1621991764

There are good honest economists and there are bank and other corporate economists. Only one type of economist gets a platform, and a completely different type tells the truth.

by J.C. | 25th May 21, 1:28pm 1621906135

All I can say about ANZ is that their media team churns out a lot of content churn (no doubt they have different templates and sentiment styles depending on their 'needs'). How many media releases are they doing a week?

by Adam B NZ | 25th May 21, 1:29pm 1621906168

Its looking likely that our borders will be slow to reopen, migration low and slow for a while and possible inflation will force the RBNZ hand to raise rates. If this happens we will see a pull back on property prices for sure. The numbers just don't make any sense. Market is way overcooked, even on 2% interest rates.

by stuart786786 | 25th May 21, 1:38pm 1621906724

Speaking of now, market is hot and no prediction willl work as long as people running the country wants the housing ponzi to continue.

If a situation arises that have concerned that ponzi may stop, can rely on Mr Orr to act overnight.

by Adam B NZ | 25th May 21, 1:48pm 1621907320

We have almost hit price ceilings on the market unless rates drop further.

by Independent_Observer | 25th May 21, 2:30pm 1621909825

Think I've heard that one a few times Adam - although as you say, unless rates drop further but given that deposit rates are now in theory negative in real terms - I don't really see the logic in dropping rates even further - but then again, if you applied logic, you wouldn't be in this situation in the first place so clearly all logic is gone from collective thought of the central bankers.

by mikekirk29 | 25th May 21, 2:35pm 1621910143

Sorry but market has been cooling since Dec if you look at sales rate and compare to 2015 boom. The mania of last 5 months of 2020 barely exceeded in sales terms that of 6 years earlier. Despite more stock and much lower rates

by house hunter | 25th May 21, 3:33pm 1621913624

Most people don't care about the mania. They care about the prices.

by dago | 25th May 21, 4:46pm 1621918012

What are you smoking? Prices surged during Feb-March this year. Wellington alone went up an avg 100k, and numerous other places exceeded that.

by Nifty1 | 25th May 21, 9:25pm 1621934742

Really can't understand this cooling nonsense when prices are inflating by the month?

by rastus1 | 25th May 21, 2:00pm 1621908056

It is not a supply issue as in houses.
It's the supply of too much cash/credit and manipulated interest rates.
When will MSM wake up and start confronting the cause.
When are MSM going to point out the increases are a transfer of wealth to the (largely) boomers at the expense of younger generations.
Its a disgrace and MSM should be shouting about it - where have the Left gone???
Time they looked through Saint Jacinda and what she is really over lording.

by Advisor | 25th May 21, 3:02pm 1621911752

It's the supply of too much cash/credit and manipulated interest rates

MSM or our pollies don't want to be the bearer of the bad news that debt-fueled consumption is all we have going for us right now as our rapidly de-industrialising economy is unable to foot the bill.

We are the economy equivalent of a once high-paid machinist having lost his job to a smarter, better-skilled engineer now does odd jobs for a living but, for the time being, has managed to maintain his luxurious lifestyle with interest-only consumer debt.

by kiwiwayne | 26th May 21, 11:09am 1621984174

Her nuclear free moment perhaps?

by AKLCrusader | 26th May 21, 1:20pm 1621992004

Won't happen, the masses are still sycophantic with Jacinda
Also, the opposition appears to be disorganised. Where would the voters turn to?

by donny11 | 25th May 21, 2:13pm 1621908780

What does supply have to do with housing? It is all monetary. You borrow $1,000,000 at 2%, the govt inflates it away at 6%. You make 4% off your loan. That's 40k a year.
How do you borrow $1,000,000? You use a house. The banks won't lend cheap money against anything else.
Sorry depositors & young people you are the losers in this game.

by Independent_Observer | 25th May 21, 2:28pm 1621909709

Agree donny11 - but the quesiton becomes, how long can that game survive. Eventaully those young people, those excluded people, need to move forward with their lives. What will they do? Burn the reserve bank down and introduce Adrian to the sharp end of a pitch fork?

by donny11 | 25th May 21, 3:05pm 1621911923

I think we are sort of in the late stage honeymoon phase of our inflationary policies. When people realize inflation is this wealth destroying beast (which it is), they will start to vote against parties with policy platforms that don't support inflation. Inflation will become a thing again, just like it was in the 70's regardless of the trash printed by stats NZ.

by JimboJones | 28th May 21, 4:01pm 1622174469

Well at least they don't count your 4% profit as a 2% loss for tax purposes anymore!

by mikekirk29 | 25th May 21, 2:32pm 1621909938

How many times is it necessary to point out specifics!!! There is a lot of demand for decent reasonably priced houses to rent. Builders are building for sale and not at price that former group can afford. Demand and supply need defining accurately. This is nearly never done so such articles are useless. Lower immigration does nothing for supply to those in need of rented accommodation
I know lenders do not care about this group but it still drives me potty

by Tom Valen | 25th May 21, 2:36pm 1621910214

lol, should call the site 'What the economists are saying'.

by lets_pump_this | 25th May 21, 2:40pm 1621910405

So what they're really saying is that house prices are gonna moon again

by Audaxes | 25th May 21, 2:52pm 1621911177

In other words, the demand pulse is probably close to peaking and supply is catching up, although there's still a long way to go."

What about the bank mortgage contract purchase pulse - who or what determines a peak?

Bank lending to housing rose from $50,788 million (48.36% of total lending) as of Jun 1998 to $305,039 million (60.75% of total lending) as of March 2021.

by Ezy | 25th May 21, 7:09pm 1621926573

Leave your inconvenient data out of this Audaxes. It's just bank economist reckons around here mate.

by Averageman | 25th May 21, 3:41pm 1621914075

If the OCR and thus housing stays where it is, another generation of smart motivated young workers will simply move to places like Brisbane. As many already have. For clarifications these are the ones that are born, raise, educated and about to enter the 40 year tax payer window. They are also the quality potential renters that wont run meth labs of screw over your rental.

NZ absolutely needs to retain these people and draw more back from overseas, as they are essential to pay for those that don't want to work, and those that are in the boomer wave of no longer working. Alternatively we could just go for a universal land tax?

by Brock Landers | 25th May 21, 3:51pm 1621914687

The leadership in this country have some very different priorities to what common sense would dictate and don't seem to care what replacement migration does to a country.

Good luck to those with the smarts to leave.

From personal experience life in both Australia and the United Kingdom is light years better for young people than here.

You only live once, don't waste it on New Zealand.

by 46and2 | 25th May 21, 10:11pm 1621937503

We've lived in the UK on and off for 10 years or so since our 20s with a couple of kids. We are in North London and love so many things about living here. People say it is a basket case after Brexit/Covid but I've never struggled for work (IT) and we've only needed 1 income. In fact its always amazed me the sheer amount and choice of work here. Europe is right on your doorstep and even if restricted to travelling within the UK there are plenty of fantastic options for holidays and short breaks. I would recommend it to anyone disillusioned with NZ (especially the price of everything) to come and give it a go because there are so many opportunities here and you can actually save and get ahead. We always keep coming back because NZ is home and we want to contribute to our country. I would also say that the longer you stay away the more you notice the culture shock on returning to NZ.

by HouseMouse | 25th May 21, 6:58pm 1621925922

Bank economist article = switch off.

by dago | 25th May 21, 8:30pm 1621931414

Did you know economists have predicted nine out of the last five recessions?

by house hunter | 25th May 21, 8:41pm 1621932070

I wonder if the "the the" error was ANZ's or interest's.

by HouseMouse | 25th May 21, 8:50pm 1621932628

Decent band

by Squishy | 25th May 21, 9:07pm 1621933625

It's interesting to me that government has has made more progress clipping demand (tax, immigration etc.) than not open up supply (KiwiBuild, residential zoning/RMA changes etc.) Construction could be a large benefit to New Zealand's economy providing demand for labour, goods, services etc. at a time when we should be trying to take slack out of the economy.

by AKLCrusader | 26th May 21, 1:39pm 1621993195

That is because they can tell people not to do things, or write laws to enforce their point of view. But as an inexperienced set of pollies who have little actual experience, they don't know how to make actual things happen.

If Cindy announces her ideological decision from the pulpit, doesn't it just happen? Policy work, planning and investment aren't really necessary are they?