Key Facts

  • The Reserve Bank’s Financial Stability Report shows a resilient financial system with well-capitalised banks, but with potential risks in the housing market, including ongoing decisions about the implementation of debt-to-income ratio limits.
  • Statistics New Zealand reports an increase in unemployment from 4% in Q4 2020 to 4.3% in Q1 2021, driven in part by outright job losses, which poses a risk to the housing market with implications for high mortgage rates.
  • The CoreLogic House Price Index shows that average property values dipped by 0.1% in April, indicating a stagnant housing market due to high mortgage rates and increased listings. However, current house prices remain approximately 11% lower than the peak.
  • Dwelling consents have declined by 26% from last year, reflecting a challenging environment in the housing construction sector. Nevertheless, the number of consents issued in the past year is much higher than post-GFC levels.
  • In the upcoming loan term reports, a continued trend towards short-term loan fixing is expected as borrowers seek to benefit from potential reductions in mortgage rates in the longer term. The forthcoming CoreLogic Buyer Classification figures may point to sustained activity among first-home buyers.

Article Summary

The Reserve Bank’s recent Financial Stability Report highlighted that our banking system is resilient and well-capitalised despite potential risks associated with the housing market. The report also indicated an ongoing consideration of debt-to-income ratio limits, a policy that is not yet finalised. As a result, potential effects on the housing market remain uncertain.

Statistics New Zealand has released data showing a rise in the unemployment rate from 4% to 4.3% in Q1 2021. This increase, driven partially by outright job losses, could pose a significant risk to the housing market as high mortgage rates persist. Coupled with this, the CoreLogic House Price Index unveiled a minor dip in average property prices in April, reflecting the impact of high mortgage rates and an increase in housing listings.

In terms of construction, there was a 26% drop in new dwelling consents compared to the previous year. This decline underlines a challenging atmosphere within the housing construction sector but is still at a higher level than seen in the post-GFC period. Looking forward, it seems likely that borrowers will continue to fix loans for shorter periods to take advantage of potential rate reductions, and we may see steady activity from first-home buyers in the long term.

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