House prices materially falling chorus from banks

In the latest BNZ Markets Outlook, the economists say there are already the first the first signs - largely anecdotal - that rising interest rates are starting to impact the housing market.

Additionally, it is clear the banking system is starting to tighten lending criteria in light of the tighter prudential requirements by the RBNZ and as banks reassess their risk in a market that is looking increasingly fragile.

“All of this will inevitably lead to, at best, a stalling in house price appreciation. More probably there will be a modest correction in prices,” says Stephen Topliss, the bank’s research head.

“So far, with just one increase in the cash rate, lending rates have moved dramatically. Money markets have now priced in a cash rate rising to 3% by July 2023. Some, but not all, of this is now being reflected in those lending rates. The average two-year mortgage rate, for example, is up around 175 basis points.”