Agency predicts house price falls
Global financial ratings agency Standard and Poor’s believes New Zealand house prices will come down in the next two years.
‘‘We expect house prices to unwind in an orderly manner in the coming year,’’ S&P said in its review of New Zealand banks.
But there was a risk the ‘‘unwinding’’ would not be orderly and measures to curb property price growth could lead to house prices falling excessively. ‘‘Following a brief correction in property prices in mid-calendar 2020, New Zealand house prices have risen substantially,’’ S&P credit analyst Lisa Barrett said.
‘‘These increases compound the risks associated with the buildup of property prices and private sector debt over several years, as well as New Zealand’s persistent current account deficit, rising external debt position, and commodity price fluctuations that pose risks to financial stability,’’ she said.
House prices soared after the Reserve Bank cut interest rates to support the economy through the Covid-19 pandemic. That left the banks exposed to a scenario of a greater and more prolonged fall in property prices, and its severe consequences, Barrett said.
The Government stepped in with measures to curb house price rises including extending the bright-line test (tax rules to curb speculation) to 10 years from five years, removing the ability to offset interest expenses against rental income for tax purposes, and lifting the price and income caps on first home buyer grants and loans.
In May, the Reserve Bank
Standard and Poor’s
would report back to the Government on the possible introduction of debt-to-income and interestonly mortgage restrictions, Barrett said.
New Zealand’s economy was recovering strongly, she said, and despite households being heavily indebted, S&P was not forecasting large increases in defaults on loans. ‘‘We consider the New Zealand banking sector is adequately placed to absorb the increased credit losses, due to the economic impact of Covid-19, within its earnings, despite weaker interest margins compared with recent years.’’
But ‘‘economic risks are also heightened by New Zealand’s external weaknesses, in particular its high level of external debt and persistent current account deficits’’.
‘‘Economic risks are also heightened by New Zealand’s external weaknesses.’’ Lisa Barrett