Today's Reserve Bank rates decision is heralded by economists as its most important since Covid. An anticipated OCR hike will put new pressure on mortgaged homeowners in election year.
Real estate agents Steve Williams and Caroline Yau got a five-star review – for selling a four-bedroom house for $760,000 less than what the owner paid for it at the housing market's peak.
It's the biggest loss on a house sale anywhere in the country, CoreLogic data reveals. No home owner has lost more money on a house sale than the vendor, Auckland banker Stuart Howard. Yet he's philosophical – he knows about finance, and knows that you buy and sell in the same market.
He needed to sell, because he'd just bought a bigger house in Epsom that he plans to renovate, to make a home for his three children.
"Steve and Caroline handled every aspect of the sales and marketing process with a professionalism and persistence that was impressive and – most important for me – delivered the result I needed on time," he writes in an online review. "What made this outcome all the more impressive was that they did it at the lowest point of the most difficult real estate market in 35 years."
Howard bought the 625 m² property for $3.01 million in October 2021 – as close to the peak of the market as imaginable. He sold it in February for $2.25m. The only change, apart from the rising interest rates and ensuing market decline, was the council granting resource consent for a block of townhouses to go in next door.
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According to figures crunched for Newsroom by CoreLogic chief property economist Kelvin Davidson, that's the biggest loss in the housing price downturn, from market peak to now.
CoreLogic's report this morning shows 1 in 16 vendors lost money on their property sales in the first three months of this year. Auckland apartment owners are worst-hit.
Howard says as long as he keeps his job, he should be okay. He got enough from selling his house on Wheturangi Rd, in Greenlane, to help finance a bigger house in Epsom that he had already paid $4.2m for, and hopes to renovate.
"I'm looking at it from a long-term perspective, rather than the short-term perspective of buying it at the peak of the market and selling it at the bottom," he says. "Because I was also buying at the bottom.
“I think I’m commercially savvy. It would have been lovely to have sold for the price I paid, but the estate agents were incredibly diligent. And they were very open and transparent with me about what was going on the market.”
Others won't find it so manageable, he tells Newsroom. "With the market with the interest rates now going up, it's gonna be a real stretch for some people."
On one thing, Howard admits he may have been wrong. The housing market hasn't hit rock bottom yet. There will be other home owners who lose even more money; interest rates are still rising and some who can't service their debt will be forced to mortgagee sales.
This week, the Reserve Bank decision on raising interest rates has been described as its most important decision since the onset of Covid. It's election year, and the size of the rate hike is being read as bank governor Adrian Orr's verdict on the Budget. Opposition party leaders Christopher Luxon and David Seymour warned the new spending in last week's Budget would be inflationary and would force up the official cash rate; Finance Minister Grant Robertson said the opposite.
"I believe this is a responsible path to travel,” Robertson insisted, on Budget day. "It takes pressure off the Reserve Bank while also ensuring that’s done in a way that doesn’t put the funding of public services like health, education and housing at the risk of austerity."
Treasury increases forecast 90-day interest rate
Treasury has already delivered its forecast. Its Budget Economic and Fiscal Update, published alongside the Budget, predicts interest rates will remain "higher for longer" over the forecast period, compared to its previous forecast in December last year.
"The Reserve Bank increased the official cash rate to 5.25 percent in April, slightly higher than in these forecasts," the update says. "The Treasury’s forecasts show 90-day interest rates remaining at a level corresponding to an official cash rate of 5.25 percent over 2023, before gradually easing over the forecast period. The 90-day interest rate reaches 3 percent by mid-2027."
Lenders had priced in declining interest rates, but since the Budget, wholesale interest rates increased rapidly in anticipation of a bigger-than-expected hike from the Reserve Bank, and amid concern at the inflationary impact of high inbound migration. Westpac economists were first to increase their predicted cash rate pick to a 6 percent peak.
"I want to see first homebuyers able to get on the ladder. With increases in interest rates, what they could borrow three months ago, they can't borrow today. So they're no better off." – Steve Williams, Ray White Real Estate
But BNZ head of research Stephen Toplis says the change in the fiscal balance sheets, between the December forecast and the Budget, should have come as no surprise. "The big question being asked of this week’s Monetary Policy Statement is: will the Reserve Bank spit the dummy and aggressively hike its cash rate in response to what it sees as fiscal profligacy?"
Kelvin Davison says there's more property pain to come, and another Reserve Bank rates hike will worsen things. He expects house prices will remain low for a few years yet, but there are few signs yet of widespread ‘stressed sales’, as there were after the GFC.
Ray White estate agent Steve Williams, who sold the Greenlane house with Caroline Yau, says house prices will drop further. "I don't think we are at the bottom of the property market yet. I really don't," he tells Newsroom.
"None of us will know when we are at the bottom because we never have, not in 23 years. We've never known when we're at the top, and we've never known when we're at the bottom. None of us know – not real estate agents, not anyone."
He says prices had been over-inflated. "The economy was falsely set, in my opinion, because of the Government trying to keep everything on an even keel through Covid and post-Covid."
He says the jury is out on whether inbound migration will fall away, as the Treasury forecast last week, and he's yet to see whether the rate of construction has changed. "Has building slowed enough that it will counteract immigration slowing again? Because I don't see enough houses personally, to meet the demand.
"If immigration were to continue on the trajectory it's on, then we don't have enough houses being built at the moment – again."
He says real estate agents are meant to be optimistic – but they also have to be realistic. The correction in house prices hasn't yet made a difference to homebuyers, because it's been countered by rising interest rates. "I want to see first homebuyers able to get on the ladder. With increases in interest rates, what they could borrow three months ago, they can't borrow today. So they're no better off."
