Rate rises could halt housing market recovery

Tuesday, 13 February 2024

New data shows the housing market continues to recover slowly, but a rise in interest rates would put a spanner in the works, experts say.

House price increases nationwide picked up again in the three months to January, with the average national price up 2% to $925,461 in January, according to Quotable Value’s latest figures.

That was a faster rate of increase than the 0.6% recorded over the three months to December, and it left the average price at just 1% less than at the same time last year.

Prices rose in 15 of the 16 regions monitored, with Invercargill, where prices dropped by 0.6%, the only exception to the trend.

Of the main centres, Christchurch had the biggest price increase, up 3.4% over the quarter to an average of $765,104 in January.

In Auckland prices were up 1.1% to a regional average of $1.29m, in Wellington they were up 2.8% to a regional average of $868,120, and in Hamilton they were up 1.8% to $789,770.

QV operations manager James Wilson said the overall trend showed the market was slowly strengthening, but there was a fair bit of volatility in the data.

That was evident in the reversal in the price increase trend from December to January when the rate went from negative to positive, he said.

“We still have historically low sales volumes, so it does not take much change in activity to increase or decrease price performance, particularly in less populous regions.

“Outside of our largest cities, we’ll still see some fluctuations from month to month, with patchy, often variable growth, especially where continued high immigration is less of a factor and activity is low.”

While there had been a lull over the summer holiday period, at one point last year a shift in mindset had become obvious, he said.

“Many prospective buyers decided things were likely to get a bit better over the coming year, especially when interest rates eventually reduce, and that led to a cautious return to the market.

“In the main urban centres, that increased confidence combined with not much on the market resulted in some competition, and that pulled prices overall up.”

But that had not continued in the cities as more stock came on to the market, and buyers pushed pause after the election and over summer, he said.

“Instead we have seen more life in some smaller regional centres over the last few months, and it may be that earlier market confidence has filtered out to more affordable options.

“The question is whether there will be an increase in listings in February, and if there is, what will that mean? Will it be met by demand and keep values flat, or will it lead to more competition, and make the market a bit hot.”

Another, crucial question for the market was what happened with mortgage rates, Wilson said.

“Until recently, predictions of a possible drop in shorter term mortgage rates later in the year were widespread, but now some banks are suggesting further official cash rate (OCR) rises could be on the cards.

“If that were to happen, and rates went up further, it would impact on the market as there would be loss of confidence and certainty.”

Loan Market mortgage adviser Bruce Patten said ANZ’s recent forecast of two more OCR hikes this year would throw a spanner in the works for the market - if the hikes came to pass.

“Currently, there are lots of new listings coming on, and activity is definitely picking up. We are getting lots more enquiries, but it is not hectic.

“If the market continues as it is now, we will see some improvements, but nothing crazy on the price or activity front. And that’s good, we want it to be steady.”

But if the Reserve Bank did lift the OCR as ANZ was forecasting, and mortgage rates went up, it would be too much for many potential buyers who were already struggling with cost of living pressures, he said.

“ANZ’s forecast may be wrong, but their call alone will cause confusion, and uncertainty. People will sit back and wait to see what happens before acting, and that could slow the market.”