ANZ's latest NZ Property Focus report is not optimistic about the outlook for the housing market.
In it the bank's economists have increased their forecasts of how far interest rates will rise and housing prices will fall.
"The case to hike the Official Cash Rate (OCR) by more than previously expected is strong, and we now expect two consecutive 75 basis points hikes to take the OCR to 5% come February," the report said.
"This means higher mortgage rates, and sooner, which will weigh on house prices."
ANZ's economists are now picking house prices will fall by 18% from last year's peak, compared to their their previous forecast of a 15% fall.
"Pinpointing the eventual floor in the market is fraught with uncertainty, but the direction of revision implied by recent events is abundantly clear," the report says.
"While some of the housing anecdote has improved over the past few months, we suspect there's probably a seasonal element there.
"Indeed, recent housing data has come in a touch weaker than expected.
"Green shoots, if there ever really were any developing, seem to have shrivelled up."
The report also suggests the Reserve Bank needs to do more to drive a wedge between supply and demand to reduce inflationary pressures.
"Unfortunately for those with a mortgage, the recent Consumers Price Index data suggest that wedge needs a few more solid whacks from the [interest rate] sledgehammer," it says.
"For recent first home buyers and the highly leveraged in general, this is going to hurt. But failure to restore inflation stability would be an even more painful experience."
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23 Comments
Who wants to make an easy 1K ? Details Below.
by JimboJones | 27th Aug 22, 9:49am
I think they will do whatever it takes to get inflation back to 3%. My personal view is that they have already done enough to get us there, but if I’m wrong it’s quite possible we will see interest rates close to 10% which seemed totally inconceivable a year ago.
Up
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by HouseMouse | 27th Aug 22, 10:22am
No chance.
I am happy to wager $1k with any one here that the OCR won’t go above 5%.
Lol.
We will see.
5% isn’t above 5%.
Thats right HouseMouse. Its a fair deal. But the prophet did say 10% Interest Rates Next Year, Guaranteed ! So the OCR would need to go higher than 5%. Start Saving !
I will start saving in TD’s soon.
Haha bless their socks, new predictions every couple of months!
just give up guys!!!!
Amongst all of this and that, the caption illustration speaks forth. That is, in the words of Monty Python “I didn’t expect the Spanish Inquisition.” Those were the days and these are the days.
18% + inflation -- thats getting very close to 30% overall and i think the vast majority agree there is a lot more downside as the 7% refixes from 2.25 happen this christmas --
There never were greenshoots -- just dragging along the very bottom of the decade sales numbers- largely mum and dad landlords exiting -- new builds bought of the plan and some sales due to relocation maybe?
There is a huge amount of pain to come and not sure its really started yet
ANZ are the main cheerleaders for ever larger hikes in interest rates... and the prime beneficiaries of those hikes in interest rates. They should declare that interest whenever they share their reckons.
the prime beneficiaries of those hikes in interest rates.
Sounds like a reckon of your own there. They have the biggest mortgage book, how do you know anything about the quality of their borrowers?
Higher interest rates only benefit banks at the margin (excuse the pun) with non interest bearing deposits (e.g. cheque accounts) funding higher interest bearing assets. But overall it is the net interest margin after credit losses that matters to bank profitability. And as another comment notes, higher interest rates are likely to lead to recession and higher credit losses and lower asset growth so, profitability from here might be challenged.
Much less growth of new mortgage business.
"For recent first home buyers and the highly leveraged in general, this is going to hurt. But failure to restore inflation stability would be an even more painful experience."
Wonder where this 'greater good' philosophy was as prices raced ahead of Kiwi's ability to pay for them over the last decade? Nice to see that's considered by-the-by even though it's literally why we are here today. But I guess there was money to be made then.
Imagine a financial institution that had to abide by its original terms and conditions when lending . Now imagine a financial institution that can change those terms and conditions to suit its own purpose. Wonder how many that jumped on RE were stuck in that imaginary original terms and conditions mode? Maybe a review of how mortgage rates are determined is required. What if the lenders had to retain those original terms and conditions throughout the life of the loan? My guess is most would have been much more realistic with their finance rates even in a time of record lows.
If it all goes bad for those that jumped into the deep end of RE will it be because the financial lenders follow OCR hikes and offer no resistance to such. But do they do so in order to protect their customers? . Or is it because they believe that YOY profits must be maintained... What would RE look like if despite record low rates financial institutions had to ensure their term rates where sustainable for their lender for the full term of the loan . Seems to me that we will have a serious problem Houston if rates go 5% but looks like the ANZEE and others treat it like just another number... Maybe its time the regulators cut RE into a category of occupier/speculator and hardened the occupiers position? Too late for those presently engaged... I might suggest the RB and Govt might find itself in a better position if it regulated RE more stringently. I am not suggesting taxes ,I am suggesting futureproofing owner occupiers and binding lenders to the full term of the loan . (critical view)
Realistic view... IMO.. push the OCR too high and it all crashes and burns.... better to throw the dollar under the bus before we get to 5% it will rebound and has some tenacity left in it. Id go 4.25% OCR sit and watch what the Fed does , throw the dollar under the bus to buy some time and hike again when the dollar reaches an uncomfortable point. I dont expect the FED will go too hard ... they wont pivot...but they cant push it as much as they would like either.
Apparently borrowers should know that interest rates couldn't stay low forever. Shouldn't the bank with all their expertise in finances know this? Isn't that why they are rewarded with decent return? For providing an expert service/mitigating risk? Let's blame the 25y/o for not having a finance degree.
Maybe Insurance companies could apply the same logic to electricians. House burns down. "Ohh suuuure, he was registered but sorry home owner you should have been more diligent in which electrician you hired, you know that appliance can't be hooked to a 15amp breaker".
> Let's blame the 25y/o for not having a finance degree.
Let us also blame car makers and dealers for all fatal crashes drunk under 25s cause.
It's not the car manufacturers or dealers getting the drivers drunk. It IS the banks increasing the mortgage rates. Yes I understand global events, OCR increases etc.
Last year I made some enquiries with the bank about raising another mortgage. At the time rental yields seemed reasonable. I was very surprised that they suggested instead of buying another property how about selling one? At the time it seemed a very weird thing to suggest to me however looking back now it makes sense. I'll take back all those rude things I thought at the time.
Maybe the banks suspected something but for some reason couldn't be too blatant about it. In the end the mortgage offer was quite low and I had to chase them up about it. Luckily Labour got me off the hook with their new interest deductibility change and I abandoned all thoughts of doing this.
To be fair the banks do stress test don’t they.
Yes they do stress test. They also increased the stress test rates recently. Now the carded rates are lapping at what the stress test rates were prior, except they were applied in a 2% CPI environment, not 7%. Oh well, borrower beware and all that.
Barfoot auctions still trundling along this week. Some interesting properties passed in while getting some good bids which I thought was brave. Also a rare mortgagee sale in Royal Oak that sold for 800k under RV although really just returning to its 2017 valuation.
This isn’t going to be their last downwards revision. Bank economists also a long way behind the curve….still.
I still see Reserve Banks as not being tough enough on managing inflation. They are falling a long way behind the curve.
I just dont think they can. Sure if they raised rates to 10% that might help with inflation while tanking the economy at the same time but how will that affect inflation driven by energy prices and climate change? It wont of course but let's all keep pretending the emperor has clothes on.
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