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Bayleys February Market Round-Up

Having well and truly rebounded, the national housing market is showing prices up seven percent since June last year, momentum which has piggy-backed off declining mortgage rates and renewed business confidence.

It’s evident that buyers have let out their financial belt-buckles demonstrating a new appetite to absorb debt, and while housing inflation is picked to increase to mid-year, clouds loom on the horizon in the form of tightening credit conditions and election-induced disruption.

Discouraged by record low interest rates, deposit growth has failed to keep pace with the demand for credit, which in conjunction to the findings of the Reserve Bank of New Zealand’s (RBNZ) Capital Review in December 2019 has put pressure of bank balance sheets and the capacity to lend responsibly.

As a result, some commercial property developers are finding it more difficult to access the finance necessary to fund private development, says Leonie Freeman, chief executive of the Property Council of New Zealand (PNCZ).

For the residential housing market this is a double edged-sword.

While migration has moderated, it is still at high levels resulting in consistent pressure on our national housing supply. When coupled with the possibility of fewer homes being built - a problem stemming from the ability to finance development, the result is heightened demand which will continue to push prices upward.

During its last Monetary Policy Statement in mid-February the RBNZ kept the Official Cash Rate (OCR) at one percent, the rate since August 2019, however of note was its distinct lack of chatter around the domestic housing market.

Economists suspect this is largely owing to the push/pull mechanism that is low interest rates and the effect on house prices. Where the equation becomes tricky however is that house prices must be managed carefully to ensure affordability remains front-and-centre, yet low interest rates encourage spending are still necessary to maintain the RBNZs targets for employment and economic growth.

Where housing inflation is doubtless to be carefully watched by the RBNZ over the coming months, latest data from the Real Estate Institute of New Zealand (REINZ) found Auckland’s housing market experienced its busiest January since 2016.

Confirming the predictions of the RBNZ and many economists, gains in both sale values and volumes indicate continued momentum through to the mid-year, when we expect to a change in the housing wind as mortgage rates creep every-so-slightly higher and election-induced hesitation begins to settle in.

**In-depth reports: **

In the latest MPS, the RBNZ kept the OCR unchanged at one percent, accompanied by a largely upbeat statement which explained both employment and consumer price inflation targets have been achieved, justifying the status quo.

• In its Monthly Property and Economic Update, CoreLogic finds that national annual housing growth finally reached positive percentages after staying in the red for the entirety of 2019.

• In a recent research paper released by the Helen Clark Foundation, Dr Jenny McArthur claims issues with affordable housing stem from systematic economic issues and the treatment of housing as a investment. The report has been met with criticism, particularly around its proposals for urban development, the implementation of a Capital Gains Tax and strategies on improving Maori home ownership.

Topical articles:

•One of the main bank’s economists are picking the next tightening cycle for the OCR will begin in early 2022, while interest rates are expected to stay on hold throughout 2020 and into 2021.

•A recent report by CEOWORLD magazine found that New Zealand is the 17th most expensive country to live in when ranked with 49 other countries. according to TradeMe’s data. This follows a spike in weekly rents across the country, which has been buoyed in-part by the return of tertiary students to University locations.

In the latest MPS, the RBNZ kept the OCR unchanged at one percent, accompanied by a largely upbeat statement which explained both employment and consumer price inflation targets have been achieved, justifying the status quo.

Controversial changes to the Residential Tenancies Act (RTA) have caused the REINZ and the New Zealand Property Investors Federation (NZPIF) to collaborate in opposition to the the stop on no-cause 90-day notices and an automatic change which would see fixed-term tenancies roll over into periodic tenancies.

• There are sofar 80,428 confirmed cases of the 2019-nCoV (coronavirus) worldwide across 41 countries, which has led forecasters to pick subdued growth of just 1.9 percent in Gross Domestic Product (GDP) for New Zealand.

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