Buyers and sellers ‘will remain scared’ until next year

House values may not fall as hard or for as long as initially predicted, with property experts optimistic the changes around lending, along with predictions that interest rate rises will stop at 6% could see improvements in the market from next year.

Speaking at the OneRoof Property Panel at Auckland's Ellerslie Racecourse on Monday, independent economist Tony Alexander said that fear in the property market would dominate for the rest of this year and that on-going interest rate stories would remain in the headlines as people questioned how high they will go.

“There’s going to be reasons why people will remain scared and the buyers will remain on the side lines, but at some points vendors will say let's get on with their lives and start stepping forward,” he told the guests at the event, which was moderated by the New Zealand Herald's Front Page podcast host, Damien Venuto.

“I think maybe it’s going to be the worst of things until the end of the year.”

Alexander noted that he had recently written down 13 reasons for buyers would sit on their hands, but now he would be listing the 18 reasons why those same buyers should be careful not to stay on the side lines too long.

Property commentator Ashley Church warned the market could change really quickly, pointing out that only six months ago buyers were experiencing fear of missing out in a really hot market.

In his mind, the Credit Contracts and Consumer Act had been fixed and the changes would come into effect next month. “The only the thing that will only be impacting, in my view, the mass sentiment in the market will be what is happening with interest rates, and if the indications are that the Reserve Bank gets inflation under control much sooner, then that fear will disappear much more quickly than it otherwise would have done,” he said.

“I’m not suggesting that the market will take off again, but I suspect you will find things will even off a lot more quickly.”

Carmen Vicelich, CEO of OneRoof’s data partner Valocity, said that house values and sales volumes had flattened in some areas, but the softening in the market was not across the board, or in all regions of New Zealand.

Valocity CEO Carmen Vicelich: “we haven’t seen the slowing down yet in some of the regions.” Photo / Jason Oxenham

“Positively, we haven’t seen the slowing down yet in some of the regions. And that’s really interesting and probably part of lockdown a lot of people spent a lot of their homes and decided actually I don’t want to live in this property, I want to change actually what’s important to me,” she said.

“You want to try and buy in Queenstown, you want to try and but on Waiheke, you want to try and buy in Omaha – good luck. It’s definitely not dropping by 10%.”

She predicted property values could end up falling nationally between 10% and 15% - but said it was important to look at the which end of the market the declines were occurring.

However, Vicelich said there would be more pain to come as about 60% of people have to refix their interest rate in the next 12 months, which meant going from about 2.25% to 4.9%.

But both Vicelich and Mortgage Lab chief executive Rupert Gough didn’t expect interest rates to rise above 6%.

Gough said banks had tested people’s ability to repay mortgages on a minimum interest rate of 6.5% and “we are still a way off that”. Banks were now stress testing people’s servicing ability about around the mid-7% mark.

“But the problem with the servicing rate is that the bank tests you on that rate – the 6.5% - you get a mortgage and it’s at 2.2% and so you spend all your money on other things. Things that you are not willing to give up traditionally or are locked into, if you’ve borrowed money to get a car...”

Economist Tony Alexander says Auckland is “actually a little bit of a buy out there”. Photo / Fiona Goodall

Gough’s advice to people who were anxious in the current market was to try and pay your mortgage because selling a property and getting off the property ladder was the last thing they should do.

“If you could only afford it at 2%, then you need to make some serious changes and that’s either cut down on expenses or increase income and for some people the increased income means a second job or a third job,” he said.

“You really just want to try and budget it in. If you can pay your mortgage as though it was 6% you are going to be safe for the next three to four years so you just want to be thinking about moving towards that.”

Church said the drop in the property market meant it was probably the best time for some would-be home owners to get on the property market if the changes to the CCCFA last year hadn’t closed the door on them.

While Alexander said in his mind Auckland was “actually a little bit of a buy out there” as Auckland’s house prices had dipped 10% since peaking in November, while warning the regions had been given an artificial boost and the people who wanted to move there already had.

“And if you like apartments, well it looks s**** in the middle of Auckland at the moment – be the Warren Buffet and walk against the crowd and maybe that’s where you look to make your purchase.”