NZ appears to have survived the boom-bust cycle

New Zealand's mortgage and property markets are in sound shape, despite facing considerable volatility, the Reserve Bank of New Zealand (RBNZ) has revealed in a special report.

“Over the past five years New Zealand house prices have risen in real terms more rapidly, and declined more rapidly, than in many house price booms and busts in other advanced economies. This includes those associated with financial crises,” according to the RBNZ. 

“Debt-servicing stresses are currently elevated and non-performing loans continue to climb. However, New Zealand has not yet seen the same widespread household balance sheet distress experienced in countries with similar house price boom-bust cycles.”

This is due, in part, to lending standards being quite high – which means most borrowers have coped with higher rates – and unemployment being quite quite low – which means most borrowers have had the income to service a mortgage.

Prices down, inventory levels up

Housing market activity remains subdued, although it has picked up modestly over the past year, according to the report. The RBNZ also noted:

• The national median price had fallen 14% since its peak in late 2021.
• Slower population growth due to falling migration had reduced demand.
• New listings had recovered to more typical levels.
• Sales volumes remained quite low and days on market quite high, resulting in a build-up of inventory levels over the past year.

Despite the downward trend in property prices, the RBNZ said higher interest rates meant it was still quite challenging to buy and hold a property.

“To assess the sustainability of house prices we consider the mortgage servicing costs for a new buyer, both relative to average household incomes, and relative to the alternative option (renting). These two indicators rose rapidly as house prices were peaking in late 2021, and they have remained at historically high levels,” the RBNZ said. 

“Overall, our metrics for house price sustainability suggest that current levels are around the top of the indicator range. This assessment is based on interest rates returning to neutral levels.”

In this kind of environment, it’s more important than ever that your clients get good home loans advice. If you know anyone who’s planning to buy a property in the near future, I’d be grateful if you could introduce us, so I can give them the service they deserve.