Alicia García Herrero (Natixis) | As the Reserve Bank of New Zealand (RBNZ) hiked aggressively to contain surging inflation, the New Zealand economy fell into a technical recession in 2023. While the recovery in exports has offset the weakness in housing investments, private consumption has softened on the back of households’ higher interest payments. Nevertheless, because inflation was still elevated at +4.0% year-on-year in Q1-24, well above the 1-3% target range, the Reserve Bank is anticipated to keep a hawkish stance.
The housing market has already begun to normalize with housing prices bottoming out. The demand-supply balance in the market has adjusted fairly well, as housing supply responded to deteriorating demand conditions on the back of higher mortgage rates. However, housing sales have recently increased, as fundamentals on demand have been surprisingly sound despite of surging interest rates. In fact, while the labor market held up fairly well with limited increase in unemployment, surging immigration from overseas has underpinned demand.
The main risk arises from the historical high household debt, which has reached 166% of disposable income. However, as macroprudential rules on the Loan-to-Value ratio (LVR) have been implemented since 2013, non-performing loans and overdue payments have remained relatively low, which would contain foreclosures.
Therefore, as the RBNZ gradually moderate its hawkish tone, the housing market is anticipated to further stabilize, on the back of stronger demand from immigration.
New Zealand: Housing market defying headwinds from higher interest rates
Auckland, New Zealand
