ANZ says housing market cooling at slower than expected pace, suggests fixing mortgages for longer terms now

Property

ANZ report says house prices holding up better than expected but warns of consequences of rising interest rates

22nd Jun 21, 2:40pm by Greg Ninness

The housing market is cooling but at a slower pace than expected, according to the latest Property Focus report by ANZ's economists.

The report said that the Government's March policy announcements which changed the tax treatment of residential investment property, were weighing on the market resulting in a slowing of sales.

However the reduced investor demand hadn't been enough to slow the pace of house price inflation.

"This came as a bit of a surprise and we have upgraded our near term house price forecasts to include a little more momentum," the report said.

But ANZ's economists have also brought forward the date by which they expect the Reserve Bank to start raising interest rates, to February next year.

"That means mortgage rates are expected to rise a little sooner than before, taking some of the steam out of the housing cycle a bit earlier," the report said.

And rising interest rates would impact the ability of households to make mortgage payments and could crimp their spending in other areas.

"Households' debt serviceability looks like it'll withstand 100 basis points or so of interest rate hikes, but all this debt accumulation means households are very susceptible to an income shock," the report said.

"And of course, even if higher debt servicing cost jumps aren't a problem in terms of households being able to meet mortgage payments, they can still crimp discretionary spending and therefore have an impact on the likes of the hospitality sector."

The report said householders with mortgages should consider fixing their mortgages now for longer terms.

"We think there is merit in considering fixing for longer, even if rates have risen slightly," it said.

"The RBNZ has signalled that they expect to hike the OCR in 2022, and we expect the first hike to come in February.

"That's less than a year away and if we are right, it could be more expensive to fix in a year's time, which supports the idea of fixing now."

ANZ is the country's biggest housing lender. You can read ANZ's full Property Focus report here.

The comment stream on this story is now closed.

You can have articles like this delivered directly to your inbox via our free Property Newsletter. We send it out 3-5 times a week with all of our property-related news, including auction results, interest rate movements and market commentary and analysis. To start receiving them, go to our email sign up page, scroll down to option 6 to select the Property Newsletter, enter your email address and hit the Sign Me Up button.

We welcome your comments below. If you are not already registered, please register to comment

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

21 Comments

by Squishy | 22nd Jun 21, 2:46pm 1624329977

How are we supposed to "buy the dips" if there are no dips?

by tothepoint | 22nd Jun 21, 7:22pm 1624346554

There are always those folk who borrow more money than is prudent...... and end up digging themselves donkey-deep into debt.

But always good to learn from the stupidity of others.

TTP

by xingmowang | 22nd Jun 21, 2:47pm 1624330074

My word:

keep buying AKL, Wgnt, Chch until average house price reaches 20x of median household income.

Trust me.

by realterms | 22nd Jun 21, 3:39pm 1624333159

I really wish I could be confident that you're wrong.

by linklater01 | 22nd Jun 21, 3:41pm 1624333291

xing,

Good to see that you have added humour to your repertoire. "Trust me". Yea right!

by Carlos67 | 22nd Jun 21, 7:57pm 1624348669

Forget Wellington, what a shit hole. Did you see the pictures and the competition being run for the worst flat in Wellington ? water dripping off the black mold on the ceilings onto your bed on the Project last night. Nice bathrooms with toilets about to fall through the floor.

by Squishy | 22nd Jun 21, 8:12pm 1624349536

Yep. Prices up and to the right, retail interest rates down and to the right. Congratulations, you've forecast the future if New Zealand's economy more accurately than most economists ever will.

by b21 | 23rd Jun 21, 9:33am 1624397581

I was not planning to even answer to your comment since you are not even taking into account some fundamentals of capitalist economy, but since it looks like just another stupid FOMO comment I'd like to tell you that we have enough the way it is to have people around trying to scare people off with comments like this. Hopefully nobody will "trust you".

by Luke83 | 22nd Jun 21, 3:38pm 1624333099

The show must go on, nothing will stop it, there is no bubble pop and the massive correction is not on the horizon. To those that are hoping for it, that hope is Miss placed, in my opinion anyway.

by rastus1 | 22nd Jun 21, 10:17pm 1624357031

Perhaps. But I would add that such a view is quite common before a market crashes. Because it feels unthinkable, doesn’t mean it can’t.

by sam-s | 23rd Jun 21, 8:36am 1624394203

I certainly think there will be a correction. In terms of the size, that's anyone's guess. But I wouldn't expect anything more then 10-20%.

by printer8 | 22nd Jun 21, 3:38pm 1624333116

Some sound comments there regarding both the outlook for the housing market and interest rates.
While some tend to dismiss bank economists outright, there is consistency with other reports and data that I have read over the past few days . . . and banks being in the business, will be will be acutely aware of where interest and mortgage rates are likely heading.

by J.C. | 22nd Jun 21, 3:47pm 1624333657

Oh yes. Banks and their employees are the modern day equivalent of the church in the Middle Ages.

by Zack Brando | 22nd Jun 21, 4:01pm 1624334482

"ME Housing Ponzi ".. "Me HUNGY..!!"

RBNZ/ANZ: "We're Printing YOU Up Some Feed RIGHT NOW" lol

Would be funny if more people/cartoonists anthropomorphized the NZ housing market. It is rather ridiculous and humor might be a good blow-off-valve for many. Best to avoid a spirit-of-rebellion taking hold and Neo-Chinese-Lying-Flat sentiment.

by TonyBarnett | 23rd Jun 21, 8:20am 1624393223

Rising interest rates are needed to make housing more affordable.

Before the interest deductibility rules were changed, owner occupiers had an advantage over investors because they didn’t have to pay tax on their housing investment. The government has sold the story that owner occupiers were at a disadvantage because they couldn’t claim interest expenses on their housing investment and investors could.

The key point that should have been recognised is an owner occupier doesn’t have to pay rent & an investor collects rent. This is the value that owner occupiers and investors get from owning a property if there were no taxes.

Unfortunately with the new interest deductibility rules the government has decided to increase the taxes that investors should pay on top of the income tax (from rent) that they were already paying, further disadvantaging investors.

The government seems to forget that there are many other expenses that investors incur that owner occupiers don’t such as; filing tax returns, complying with healthy homes & other tenancy legislation, damage caused by tenants etc. as well as Bright Line capital gains taxes.

The government seems to forget that investors provide rental accommodation for the vast majority of renters.

Rents will now rise faster than they would have if interest deductibility rules had not been introduced forcing more people into costly emergency accommodation.

Supply of lower end rentals will diminish as landlords abandon this type of investment due to the tax changes & risks around getting good tenants. For these people this will be a crisis never seen before in NZ.

If the government had carried out due diligence with a benefit/cost analysis on this it would have never gone down this path. Almost no benefit for owner occupiers/First Home buyers & a huge disbenefit for a large number of renters.

by Mountie | 23rd Jun 21, 6:15am 1624385734

Labour have done what needed to be done, i.e incentivise new builds. If this pushes old and ordinary houses into the pool available for first home buyers, good. Seriously good.

by Nzdan | 23rd Jun 21, 7:34am 1624390447

What about the tax that Owner Occupiers pay on their wage/salary income? Are you suggesting they should pay tax on their mortgage payments?

Or are you referring to the brightline test? Something all investors that own their own home also enjoy?

Looking forward to this mass exodus the whiney investors keep claiming will happen, haven't seen it yet.

by house hunter | 23rd Jun 21, 8:28am 1624393720

I doubt the new interest deductibility rules will last for more than a few years. Seems like there will be a lot of loopholes and inconsistencies making it an easy target to be rolled back upon the next major change in government.

I do think it is a commendable attempt to swing the market a little towards the FHB. @TonyBarnett you say "Supply of lower end rentals will diminish as landlords abandon this type of investment " but that sounds like a good thing assuming those properties are sold to FHBs. Probably many investors will just try to ride it out.

by refactornz | 23rd Jun 21, 9:58am 1624399125

It's good for those few FHB who are in a position to buy but bad for those who are unable to, and bad for students, etc., who have no intention to buy.

by Pragmatist | 23rd Jun 21, 10:56am 1624402570

Sold to FHB or Developers for intensification or even just replacement of a 1950s rotbox with a something with insulation and double glazing etc. Both are a win as far as i'm concerned.

by calis | 23rd Jun 21, 11:29am 1624404594

Well, economists have predicted 7 out of the last 2 crashes, so I'm shocked they haven't picked this right.