The ANZ bank has raised its previous prediction of a 15% drop in home values from their late 2021 high to a current estimate of a 20% drop.
Although housing market predictions are laden with ambiguity, ANZ analysts said in their monthly magazine Property Focus that it is “abundantly evident” prices will likely continue to decrease given the health of the global and local markets.
When corrected for wage inflation, the expected reduction in property values is nearly 27% before prices return.
These numbers not only indicate a sharper decline in home values than was anticipated, but they also suggest that mortgage rates are likely to increase dramatically shortly.
According to ANZ economists, who published their findings in a New Zealand Property Focus research titled “Nothing lasts forever,” soaring home prices have been driven by a combination of low-interest rates and a lack of supply.
The research says several reasons have supported the current increase in home prices, but exceptionally favorable financing circumstances have been crucial.
As of September 30 last year, ANZ had $89.544 billion in mortgages, making it the largest mortgage lender in New Zealand.
Demand for housing and credit has risen in response to historically low-interest rates, putting upward pressure on prices, and worsening the market’s limited supply.
Meanwhile, “abundant bank liquidity,” especially due to the Reserve Bank’s Large Scale Asset Purchase Programme (also termed quantitative easing), has guaranteed that credit supply has been easily accessible to fulfill this demand.
Even yet, the report does caution that the present state of affairs is not likely to endure.
According to ANZ analysts, rising domestic inflation due to rising prices for consumer goods is to blame for dropping home values.
The Reserve Bank of New Zealand (RBNZ) is expected to respond to the strengthening currency by increasing the official cash rate (OCR) by another 5%. It’s anticipated that this will occur again, first in November and again in February.
The banking behemoth also cautions that further OCR increases may be on the horizon “if the labor market fails to improve soon” or if the government decides to add another fiscal stimulus measure to the mix.
To stop the wage-price spiral from escalating, ANZ suggests raising the OCR even more. While the modelers are optimistic about their findings, they admit that predicting the market “tends to be a bit of a lottery.” The market bottom can’t be predicted with any accuracy at this time.
We are not trying to disassociate ourselves from our prediction but rather to stress that it is essential to consider other factors while making plans for the future.
