Interest rate hikes aren’t likely to affect Wellington house prices in the short term, Tommy’s Real Estate Sales Director Nicki Cruickshank says.
“Listings are rebounding as we head into our busiest season and the Wellington market is still strong in terms of prices “This is mainly due to lack of supply but also because we’re probably the least affected economy in the country due to high employment and a highly skilled workforce.”
Last week the Reserve Bank raised the Official Cash Rate, which influences the interest rates borrowers pay, by 25 basis points to 0.5 per cent.
It was the first OCR rise in seven years and sparked a round of mortgage rate rises by the trading banks, with the country’s biggest, ANZ, lifting its floating rate to 4.59 per cent.
But Nicki thinks the initial impact on house prices will be minimal, “as banks have been testing buyers at a higher rate for some time.
“It will affect investors and first-home buyers the most, less so those looking to make their second or third move, as they are likely to have better equity.”
But if the OCR spikes as high as 2 per cent in 2023, as some economists tip, will this lead to a sell-off and tamper demand?
“We have to remember that the OCR is still incredibly low and even if interest rates do get back to slightly higher levels, it may feel like it is getting back to ‘normal’,” Nicki says.
“I don’t see it causing a sell-off, but definitely will affect demand.”
The OCR rise coincides with tighter loan-to-value ratios and new tax rules for investors.
But even before these took effect this month, investors were predicting changes, Nicki says.
“What we have seen is a shift from purchasing older properties to brand-new so they can still claim their biggest expense, that of interest.
“As a result, we are now seeing a bit of a sell-off of older properties. Demand has also decreased in the investor market, and this is likely to be due to both rising interest rates, tax changes, and the LVR.
“Most of the rental properties coming to the market are those that just own one or two properties, which I believe make up the majority of the investor market in Wellington.
“This is due to the ongoing high cost of maintaining older homes, the ability to gets tradespeople and materials to do this, the difficulty of trying to meet some of the healthy homes regulations in these houses and, of course, the interest cost.”
Nicki says more two-flat properties are coming to the market as their owners choose to exit the investment market.
“This is a good opportunity for first-home buyers to obtain a home with the assistance of someone renting and helping to cover the mortgage.
“We’re also noticing a lot of first-home buyers buying off the plans in more recent times, which gives them extra time to save by the time they settle.
“These are mainly apartments in the city, where they are under a million dollars, or townhouses out of the city or in the regions.
“It will be interesting to see how this changes the demographics of the suburbs in the coming years.
“In the meantime, it will be largely business as usual up until Christmas.
“My feeling is there will be an increase in houses for sale in the new year, and likely be less demand due to mainly LVR regulations.
“Therefore, we’ll see a slowdown in demand and potentially houses will become a little bit more affordable.”