LEARNING FROM NEW ZEALAND
CAREY SMITH
Ray White New Zealand CEO
Since that time , we have experienced three further interest rate rises in November 2021 , 25 basis points ; in February 2022 , a further 25 basis points ; and in April 2022 , a lift of 50 basis points . This has lifted the official cash interest rate to 1.5 basis points from 0.25 basis points only six months ago . It may not seem like a high-level increase in terms of quantum , but in real terms , the lift has been fivefold and is expected to continue to increase .
Changes have quickly occurred in the confidence of buyers and sellers to transact real estate across New Zealand . The ability to borrow money has increased barriers over the past quarter . When this is linked to increasing interest rates , affordability has resurfaced as a key issue in buyer and sales rates .
Looking at where the market has come from , it ’ s not a surprise to many that a slowdown had to occur . Since COVID-19 and post our first lockdown in April 2020 , prices have surged an average of 41 per cent during the past two years across New Zealand . Some markets have experienced higher increases which have changed the average price considerably .
This dynamic and the house price increase has never occurred in previous real estate markets in such a short amount of time . Interest rates dropped to record low levels , and borrowing was encouraged . This allowed buyers to enter the market and sellers to take a perceived uplift in price . Confidence abounded in the market in New Zealand . Property became very much the talking point , and the success of marketing property increased , which delivered higher sale prices and lower days on market .
We learned new acronyms such as FOMO ( fear of missing out ), which became commonplace for buyers who were outbid at auctions and became the preferred method of marketing in April 2020 . At one stage , upwards of 75 per cent of all property was auctioned or submitted to the market by tender . Much of the property sales were also done remotely , given the environment we were all transacting in .
Although housing prices are considered to be a factor , the rapidly increasing inflation rates due to supply-demand and constraints on goods suddenly saw inflation lift to new record levels since inflation rates have been taken in New Zealand . The new record level of 6.9 per cent is unsustainable according to the Reserve Bank . These are the highest levels experienced in the last 20 years . Given that inflation is an average of the prices throughout the economy , it means money is losing value . The Reserve Bank has described the underlying cause as the availability of too much money to purchase goods and demand continuing to outpace supply .
Combine this with price rises in commodities such as oil , inflation is the number one target of the government to reduce back down to its targeted level of between one per cent and three per cent .
Fast forward to October 2021 , and the Reserve Bank advised the first upward lift in interest rates since 2014 . After 25 progressive statements of either stable or lowering interest rates , this was the first time the market had experienced an upward lift . Although this was only 25 basis points , it was enough to indicate more interest rate rises were to be expected .
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