It is becoming increasingly clear that New Zealand is facing another housing bubble.
The New Zealand real estate market has fought off the COVID-19 pandemic and saw value growth of 2.1% in the two months to October, up 8.0% year over year. Another record high was reached:
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Laut CoreLogic:
The support mechanisms put in place by the government (wage subsidies) and banks (deferment of mortgages) have helped to cushion the market, while the intervention of the Reserve Bank of New Zealand (RBNZ) (program for quantitative easing of interest rates, temporary suspension of loans to) – Value-to-Ratio (LVR) constraints now appear to stimulate demand and thus contribute to increasing value growth.
Nick Goodall, Head of Research at CoreLogic, says, “While the RBNZ has recognized that one consequence of its monetary policy is to increase asset prices, this is a better result than the opposite scenario of a loss of confidence that leads to a decline in real estate values. “
The lack of available real estate on the market is also a major contributor to rising prices, as offers across the country are at their lowest ever.
As noted above, part of the reason for the price rebound is that the RBNZ lifted LVR restrictions for at least 12 months in May, partly due to technical reasons related to the mortgage deferral system that ran through March 2021. These LVR limits have been in place in some form since 2013.
The result is that mortgage commitments are now booming which, when combined with low inventory levels, results in price increases:
According to the RBNZ, mortgage loans totaled $ 7.3 billion in September – the highest month since the survey began in 2013 and nearly $ 2 billion (32.8%) more than the same month last year.
ANZ’s recent Real Estate Focus reported that FOMO (Fear of Missing Out) has now struck the New Zealand real estate market:
A “frothy” speculative element seems to be emerging, with FOMO (fear of missing out) being part of the equation. Buyers believe it is a good time to buy despite a huge economic downturn and property prices appear to be moving from very high levels against the flood of fundamentals. This could contribute to a more volatile cycle as the market changes – especially if buyers entering the market have high debt to income, making them more vulnerable to income pressures.
Oddly enough, the New Zealand Real Estate Investors Federation is blaming the first home buyers “Make the real estate crisis worse”::
The Property Investors Federation blames early home buyers for the real estate crisis and warns that they are making rental properties worse.
In an interview with RNZ on Tuesday, CEO Sharon Cullwick argued that while real estate investors are not helping to resolve the crisis, they are not the problem.
“When a first home buyer buys a property that was a rental property, you need another house to accommodate the extra people who live in that rental home,” she told reporter Eva Corlett.
“Every time a first-time buyer buys a home – even though it’s great to be on the market – it makes the housing crisis worse.”
Sharon Cullwick’s argument runs counter to logic. When a first-time buyer buys a home and does not rent it, they remove the rental offer in the same proportion as the rental demand. So it’s a zero tie.
She also conveniently left out that investor demand outpaced demand from early home buyers:
Or that investors are making riskier loans:
Regardless, Prime Minister Jacinda Adern will have to stop working to fulfill her promise to tackle New Zealand’s real estate crisis.
Leith van Onselen is chief economist at MB Fund and MB Super. Leith previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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