Market bottoming out delayed

That outcome led to a substantial jump in wholesale borrowing costs in New Zealand which proved to be the death knell for banks hoping that borrowing costs would be falling soon. Margins for bank fixed rate lending have fallen tremendously in recent months and one thing banks don't like to do is cut interest rates and then have to put them right back up again.

With no chance in the near future of wholesale borrowing costs returning to where they were in June banks have increased their fixed mortgage rates by about 0.5% across all terms. Do further increases lie down the track?

Bank lending margins on fixed rate mortgages are still well below average. So, in theory it would be easy to say they will raise rates by another 0.5%. But the housing market is relatively weak and 2/3 of bank lending in New Zealand is in the form of home mortgages. So banks are reluctant to risk loss of market share in a slowly growing market.

The question of course is whether the outlook for the residential real estate market has changed all that much. The answer is yes but not so much for first time buyers.

My monthly survey of residential real estate agents around New Zealand shows that first home buyers continue to return to the market. They are attracted by the extent to which average house prices have fallen over the past year, the improvement in credit availability since the crunch of early this year, and the doubling of the number of properties listed for sale compared with a year ago.

Their job security is very high and maybe more are treating housing as an asset for raising a family rather than something akin to an equity or cryptocurrency asset where the aim of buyers is to try and pick the bottom of the market. None of us has a proven record of ability in picking market bottoms and tops so perhaps the young buyers are logically forsaking achieving the final 5% decline in house prices in order to secure an asset many will own for a great number of decades.

The main impact of the new round of mortgage rate increases is on investors. I mentioned last month that they were starting to lift their heads and take notice of the return of first home buyers to the market. But from my survey of real estate agents I can tell that they have shrunk back again from the market.

Because of a general feeling that interest rates don't have much further to go up if any scope at all, and because the first home buyers are still in the market, I still believe we are in the endgame for the period of decline in the nationwide housing market which started right at the end of last year.