How does the recession impact the housing market?
New Zealand is now officially in a recession. However, this recession is different to a typical recession. The economy has shrunk, but there’s steady job security.
The problem with the economy at the moment is inflation, rather than unemployment. With a good level of job security out there, many people still feel confident to make larger purchases.
Mortgage Rates
The Reserve Bank (RBNZ) have been very clear that the increases to the Official Cash Rate (OCR) were done for a reason, to attempt to cool the economy. And that these actions might potentially push the country into a recession, which is where we find ourselves now.
While hitting a recession might have occurred sooner than some predicted, it wasn’t a complete surprise. And in fact, for those worried about rising mortgage rates they can have a little more confidence that the RBNZ will not continue to keep hiking the OCR and that the OCR may have indeed, peaked.
Feelings of Job Security are High
As mentioned, this recession is different to most. The high cost of living is making most of us feel like we’re going backwards, however, for many, the feeling of job security is still high. This doesn’t mean that everyone that has a job is doing great, but it does mean that there’s still some confidence for purchases to be made at different monetary values from a product to a car or even a home.
And high job security means people who have been sitting back waiting for interest rates to fall, have been earning (and saving) during this time. This means there’s a potential queue of delayed house buyers ready to come into the market. (Admittedly there are also some people who may have used that money that was earmarked for a house deposit and spent it on the likes of overseas travel!)
Update on Housing Market
There have been signs recently that the property market slump is nearing its bottom, with the rate of price falls declining and greater consumer confidence about what’s to come. Given employment is still strong, many economists are predicting we’re over the worst of things and that we should see some growth from here, albeit slow but steady.
For many, now is still a great time to enter the housing market. And with an election coming up, there’s mixed views out there as to whether the months leading up to an election impact the housing market or not. While the party’s full housing policy has not yet been released, National and Act have both spoken about their commitment to bringing back interest deductibility and changing the Brightline test criteria. Those in the property market industry have said, if National were to be successful at election time and these policies where introduced, it would likely lead to increased investment inquiry. If this were to happen, it may be more challenging for first home buyers to enter the market and get on the property ladder.
Changes to Come
With New Zealand now in a recession and the increases to OCR appearing to have done what RBNZ intended, economists are predicting that there will not be any further OCR rises, rather it would remain at its current rate and not fall until next year some time.
And once interest rates start falling next year, all those people who have been waiting in the wings for the last couple of years for the rates to drop, will look to get moving and into the market!
If you’re thinking of purchasing a home now while we’re in a recession, but have some queries, please reach out to one of our mortgage brokers. They will go through everything with you and make sure any solution is one that is tailored to you and your personal situation.