ANZ warns Auckland homeowners: ‘Game’s over’
ANZ’s chief economist says ‘‘the game’s over’’ for Auckland’s housing boom, and warns New Zealand’s largest city is now heavily exposed to the risk of rising interest rates.
While Auckland has a major shortage of new houses being built at a time of record migration, Cameron Bagrie said the real driver of house prices were low interest rates. With mortgage rates already climbing, Bagrie said higher borrowing costs would trump the supply shortage.
‘‘I think the big driver is interest rates, and interest rates are heading up,’’ he said.
‘‘We’re in a fundamentally different market now, so I think the game’s over. Auckland is in a consolidation phase.’’
While ANZ expected that there would be only a gradual increase in interest rates over the next two years, in which case Auckland house prices would tread water, Bagrie said it was ‘‘game on’’ if inflation rose faster than expected.
If that were to happen, the Reserve Bank would be forced to ‘‘play party pooper’’ by raising the cost of borrowing.
Auckland was now much more exposed to rising interest rates than it was 2007, the last time the market turned.
‘‘House prices have risen to such an extent that we estimate that for the average Auckland household to purchase the average house … debt servicing costs [principal and interest] would now represent 51 per cent of average disposable incomes,’’ Bagrie said.
‘‘A 1 percentage point increase in mortgage rates would see this jump to nearly 56 per cent, which is far higher than in 2007, when the minimum mortgage rate was closer to 9 per cent.’’
Senior figures have offered contrasting views about whether higher interest rates spelt the end of the boom for Auckland, or if a shortage of supply would kickstart the market.
Finance Minister Steven Joyce warned on March 22 that the key dynamics in the housing market, including interest rates and supply, were changing, hinting that Auckland’s market could already have turned.
Reserve Bank governor Graeme Wheeler then warned that while price rises had eased, it was not clear if this would continue ‘‘given the continued imbalance between supply and demand’’.
Bagrie said there was clearly a supply shortage in Auckland, but argued that it was interest rates, rather than shortage, which were the main driver of rising prices.
While house prices had increased sharply rents in the city have not kept pace. ‘‘You’ve still got a [supply] shortage, so Economics 101 tells you prices have got to go up,’’ Bagrie said.
‘‘But the housing shortage has not been the dominant player here in terms of what’s driving the market.’’
There was a growing ‘‘disconnect’’ between Auckland house prices and rents, he said. ‘‘You can’t ignore the impact that interest rates have had on the market, and I just think that’s going to be the dominant driver and influence on the market going forward.’’
MyLotto scam warning
Lotto website MyLotto.co.nz has warned its users that a scam website is trying to trick them out of their account information. ‘‘The website, nz-lotto.nz, looks just like our official website, MyLotto; however, [it] has no association with Lotto NZ. Sites like this are designed to fool users into providing their username and password information,’’ it said. ‘‘If you believe you may have used this site, you should change your password on MyLotto and on any other sites that use the same password now. ‘‘ MyLotto said all players should only use the official site and not provide any account or personal information to sites with different URLs.
Insurance levies to rise
Internal Affairs Minister Peter Dunne has confirmed a 40 per cent increase in the Fire Service levies applied to insurance policies. From July, the existing Fire Service will be replaced by Fire and Emergency New Zealand, which will deliver a comprehensive national emergency service across the country. ‘‘Local government will also no longer fund the costs of rural fire services, approximately $30 million nationally, from local rates,’’ Dunne said. New rates to apply from July will mean New Zealanders with house and contents insurance will have a levy increase of 70 cents a week, or $36 per year. The total levy on house and contents insurance will increase to $127.20 a year. Car insurance will increase by 5c per week, which is an additional $2.37 per year. The total levy on car insurance will now be $8.45 per year.
Merger ruling delayed again
The decision on whether Fairfax New Zealand and NZME can merge has been delayed for the second time this year by the Commerce Commission. The delay came after the publishers submitted research that said more journalists would keep their jobs if the merger was approved than if it was declined. The regulator said yesterday that it now expected to release its decision on May 2. NZME chief executive Michael Boggs said in a statement to the NZX that the process and extension was consistent with the commission’s ‘‘typical practices’’.