Realtor boss maintains positive market outlook
The unsustainable level of New Zealand house prices could result in monetary and financial stability challenges in the country, according to the Reserve Bank of New Zealand (RBNZ).
In a speech to the Property Council of New Zealand Retail Conference, RBNZ Governor Adrian Orr discussed why the central bank cares about the level of house prices and the concentration of housing in household and bank balance sheets, the factors leading to volatile house prices, and recommendations to promote a better functioning housing market.
Orr explained that the main factor leading to financial stability risk is the housing supply's inability to respond in a timely manner to demand changes.
“House prices and housing affordability are affected by both supply and demand factors, ranging across immigration, tax policy, government benefits or transfers, land availability, building standards, infrastructure, and training programs,” he said.
“Ultimately, it is access to land and space that has recently proved to be the biggest challenge to enabling a smooth functioning housing market.”
Read more: RBNZ: New mortgage commitments plummet
Despite the supply and demand issue and other factors, Century 21 New Zealand owner Tim Kearins said the property market remains an attractive proposition to those taking a longer view.
“While it is a time of turmoil in many respects, let's not forget that New Zealand enjoys great political, financial, economic, and social stability. That has helped underpin a relatively prosperous housing market over the years. Yes, the Reserve Bank stands by its forecast that the rate of growth is likely to slow, but Kiwis' confidence in the housing market will continue as will their demand,” Kearins said.
The realtor boss agreed with the RBNZ's statement that 25% annual median house price growth was never sustainable. However, on the bright side, any easing would most likely be sure and steady.
The Reserve Bank does not expect a sharp correction, but it raised some concerns about recent buyers borrowing more to their relative income that make them more vulnerable to higher mortgage rates. Hence, it promised to consult on the merits of implementing debt servicing restrictions and reminded banks to be more cautious about high debt-to-income loans.
“No one wants to see young Kiwis over-commit and then get caught. In that regard, the Reserve Bank's soundings and possible actions are designed to minimise such risk,” Kearins said.
“Mortgage rates are still very low, rents are at record highs, housing demand remains strong, and despite the pandemic and lockdowns, economic confidence and unemployment are in relatively good shape. All things considered, we're not expecting a red-hot summer, but it will be a busy one,” he added.
“Yes, there are massive stresses in certain sectors and regions, but history shows us that residential housing in New Zealand is a safe and proven medium to long-term investment.”
