Rising Interest Rates Not All Bad News

Rising Interest Rates Not All Bad News For House Sellers

Though fixed home mortgage rates are among the highest levels since mid-2000, the recent rates hikes are having minimum impact for home sellers. Professionals real estate offices in Auckland and Northland anticipate that high immigration, historically low unemployment levels and rising wages will hold the Auckland and Northland housing market throughout 2007.

Havard Daniels, principal of Albany Real Estate, a member of the Professionals Group, says the Auckland market remains strong, and his seven offices are still attracting high interest from New Zealand and overseas buyers.

"Immigration is the biggest driver of the housing market," he believes. "While you continue to have more people looking for homes than there are properties available -which is the situation we have now, particularly in the Auckland area - then you have a strong housing market."

Similarly in Northland, real estate agents report only a slight cooling of the housing market following climbing interest rates. Barry Joblin, principal of Glenbarry Real Estate, a member of the Professionals Group, says Northland prices appear to be stabilizing, but there is unlikely to be any fall.

Barry Joblin, who has worked in the real estate industry for 23 years, recalls holding a mortgage of 21.5 per cent on one of his own properties in the 1980s, and says by those standards today's interest rates are reasonable.

He says people, who are influenced by the interest rate rise and are pulling out of the market because they think the property market has peaked, need to think again. "The danger is that if you pull out of the housing market you may miss the next cycle – and then it is such a struggle to get back in again."

The Reserve Bank increased interest rates for a second time this year on April 26, and banks will inevitably follow suit, raising both fixed and floating mortgage rates. Borrowers coming off 7.7 per cent fixed loans in coming months will face a rate of almost nine per cent, and floating rates are now 10 per cent.

Many analysts, however, believe the latest rise will do little to subdue home buyers, saying rates would have to rise significantly to have much impact – and even then it would take about six months for the market to slow down.

One factor driving the strong housing sector is the continuing low unemployment rate and tight labour market. Wages are going up - the average of all salary and wage rates increased by 3.2 per cent in 2006*. With home buyers in general having more money to spend, most economists are suggesting that house prices won't be falling any time soon, but should in fact rise by about five per cent this year, held up in part by strong job security and rising wages.

Certainly, an earlier rise in the Official Cash Rate didn't appear to deter buyers at all. The average New Zealand house price climbed yet again in March, with REINZ figures revealing that the national median house price hit a record $343,500, 13.7 per cent higher than in March 2006.

Havard Daniels also points to the local and regional councils' planning policies of restricting land supply for urban development – this rationing of land has a far greater effect on the housing market than interest rates, he believes. "The housing market is still a great savings medium. There has been nothing to beat the returns housing offers in my adult lifetime."

Barry Joblin says: "People view property as an essential item and they are continuing to buy on that basis. Those with investment properties will be even less affected by rising interest rates, because they will benefit from better tax benefits. Capital gain is the major attraction of an investment property, not the income stream."

Experts disagree about the reasons for soaring house prices: immigrants, baby boomer investors, developers and councils have all been cited. However, most economists and analysts appear to agree on one thing: rising interest rates may have a mild restraining effect on the housing sector, but they are not heading us for a hard housing-market landing.

* Source: Treasury Monthly Economic Indicators February 2007.

THIS ARTICLE, FROM PROFESSIONALS REAL ESTATE GROUP AUCKLAND/NORTHLAND REGION, IS FOR IMMEDIATE RELEASE. FOR ANY FURTHER INFORMATION, PLEASE PHONE GARY MURPHY ON 09 298 0980 OR EMAIL garym@propertylink.co.nz

May 15, 2007

ENDS

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