Interest rates may have peaked, but the mortgage pain is not over and the impact on the housing market is likely to be greater, commentators say.
The Reserve Bank is expected to leave the official cash rate unchanged at 5.5 percent on Wednesday, and most forecasts say it won't fall until the end of this year.
Higher interest rates are blamed for a significant decline in home values. Although the market decline has now largely stopped, prices are still far from their peak: around 15 percent according to measurements by the Real Estate Institute (REINZ).
That puts pressure on people who bought in recent years and now face both higher interest rates and softer values.
Corelogic data showed that 7.1 percent of homes that changed hands in the first quarter of this year sold for less than they were bought for. The average holding period of those who made a loss was 2.4 years. The average loss was $50,000.
Chief real estate economist Kelvin Davidson said about 4 percent of property resales were held for two years or less, compared to 9 percent in the first quarter of 2020.
'I suspect that rather than there being financial tensions – although clearly there will be, but I think that's probably just a reflection of the changing market – you could stay short before the corona crisis and see some solid capital gains can book; in recent years that has not been the case' I don't want to cut it short because capital gains have been flatter.”
He said homeowners have adapted relatively well to higher mortgage rates so far, but the process is not over.
'Not everyone has raised the 7 percent price yet, and now we are facing additional pressure from job losses. I'm not sure this will cause a wave of financial stress – not least because the banks are very keen to help. people through it – and no one expects a huge hit in the unemployment rate.
“But it's still a risk to watch, and another reason to think this housing market 'rebound' will remain slow and piecemeal.”
Mortgage sales rates were still relatively low, he said.
Gareth Kiernan, chief forecaster at Infometrics, said there are signs of increasing tension in the housing market.
The number of homes for sale on Realestate.co.nz has risen 23 percent since July last year to the highest level since 2015.
'The biggest increases were in Wellington and Wairarapa – up 43 per cent and 35 per cent respectively, as the specter of public sector job losses hung over the lower North Island.
“Other regions with increases of 30 percent or more over the same period include Auckland, Bay of Plenty and Coromandel – areas where affordability figures remain very stressed given the current combination of house prices and mortgage rates.”
He said it cannot be said that the sellers came back to the market because their sales prospects had improved.
“After rising 3 percent between April and July last year, REINZ's house price index has gone sideways over the past six months. Instead, higher numbers of new homes and the larger inventory of homes for sale suggest that more people are struggling with higher mortgages. payments, and try to offload property before the bank sells it out from under them.
“This inference is consistent with Reserve Bank data showing that the share of non-performing and delinquent mortgage loans has been on an upward trend since mid-2022 and is now at its highest level since 2013.
“Anecdotally, the additional bite of higher mortgage rates over the past six months has come as highly indebted households have depleted their cash reserves and are struggling to meet their higher payments, with mortgage rates at 6.5 percent or more. Some homeowners or investors will. have previously been able to put money aside while having a lower fixed mortgage interest rate.”
He said only people who had annual subscriptions could access a rate lower than before, and only then if they were willing to take a longer term.
But almost 70 percent of new loans are provided with a term of six or twelve months.
Real estate investor and coach Steve Goodey said he had seen a number of people buying homes from people who suffered a major loss. “Some are really feeling the interest rates.”
He said some developers were likely under pressure because it was possible to buy new-build homes at prices below what it would cost to build them.
Kiwibank chief economist Jarrod Kerr said there are still about 15 per cent of households who have not abandoned Covid low interest rates at all.
New data from Corelogic shows that the number of transactions by 'movers' moving from one owner-occupied home to another has increased by 27 percent.
The market share of first-home buyers fell to 25 percent and mortgage investors accounted for about 20 to 21 percent of activity, a low level compared to history.