Thanks to a modest drop in prices, first-time buyers got a slight advantage in the market in January, but the Reserve Bank predicts that house price inflation could rise above 22% by the middle of this year.
Here’s what you need to know:
First Home Buyers at Slight Advantage in January
According to data from the Real Estate Institute of New Zealand, a modest drop in prices at the bottom end of the market, and an even smaller fall in mortgage interest rates, made it slightly easier for aspiring first home buyers to get into a home of their own in many parts of the country in January.
The national lower quartile selling price dropped back from its record $550,000 in December to $525,000 in January, ending seven straight months of price increases.
Around the country lower quartile prices declined in six regions – Northland, Waikato, Hawke’s Bay, Wellington, Canterbury/West Coast and Otago. Here in Auckland, January’s lower quarter price was unchanged from December, with both months being down very slightly from the record high set in November.
Mortgage interest rates also fell marginally, with the average of the two-year fixed rates charged by the major banks declining from 2.58% in December to 2.56% in January. The dip in prices meant the amount that would need to be stumped up for a 20% deposit on homes purchased at December’s national lower quartile price, dropped from $110,000 in December to $105,000 in January.
The rise before the fall – house price inflation peak of 22.4% predicted by mid year
In it’s Monetary Policy Statement, The Reserve Bank forecasted that house price inflation will rise above 22% by the middle of this year before easing.
The forecasts, prepared by RBNZ and CoreLogic have changed markedly in the latest MPS compared with the last one in November, reflecting how fast actual prices have risen (between January last year and January this year they rose just over 19%, according to the Real Estate Institute).
In the November forecasts the RBNZ/CoreLogic were forecasting house price inflation of just 7.9% for the year to June. Now the forecast is 22.4%.
However, House price inflation is forecast to fall to 18.4% by September and then 10.2% by the end of this year. And then by March 2022 the RBNZ reckons annual house price inflation will be running at just 3.9%.
The RBNZ stated that a more resilient labour market and the arrival of more permanent migrants prior to the border closure “have contributed to house price inflation being higher than assumed”.
“High house price growth can also be attributed to constrained housing supply, declines in interest rates, rebalancing of investment portfolios, and the temporary removal of restrictions on high loan-to-value ratio (LVR) lending in April 2020,” the RBNZ said.
Have Interest rates bottomed out?
Banks have started raising interest rates on term deposits. Wholesale interest rates have edged up over past few months. Bond yields are also rising in most parts of the world. Does that mean interest rates have bottomed out?
-by Ravi Mehta from Professional Financial Solutions