The Influencers: Kelvin Davidson

Staying on an even keel

It’s going to be another fascinating year for the property market.

The recent move to red is a clear signal that Covid’s disruption is not yet done, which may cause some turbulent times for the New Zealand economy and property market in the months ahead.

The total value of residential real estate reached $1.72 trillion at the end of the fourth quarter of 2021, up from $1.35 trillion at the end of 2020, with mortgages secured against 19 percent of that value. Household debt is high relative to income, and to some extent the debt has only been sustainable recently because of low mortgage rates.

Rising home loan interest rates mean households will have to adjust their finances quickly to ensure they stay on an even keel.

All borrowers are having to face the reality of significant mortgage rate increases.

While future rate rises could be smaller and slower than recent ones, we can’t overlook the fact that about 60 percent of existing loans need to be refinanced within the next 12 months. Anybody who fixed for a year in about April/May 2021 could potentially see their mortgage rate double when they review mid-this year, which can have a significant impact on household budgets.

The good news is that we [CoreLogic] suspect that by mid-2022 the balance of power could tip towards home buyers. It certainly wouldn’t be a surprise to see average value growth slow from almost 30 percent in 2021 to single digits in 2022.