4. Interest rates and the housing market
Mike says this is the most rapid increase in mortgage rates in about 15 years - this is important because it's not always the level of mortgage rates that really matter for house prices. It's the speed at which they change because that’s what feeds through to mortgage borrowers' back pocket.
"About 60% of all mortgage holders on fixed rate mortgages are going to roll those rates over the next 12 months. So those big increases will be felt in short order, and probably slow down spending."1
As well as interest rates, accelerated building programs are increasing the supply of new homes, tighter lending laws are making it harder to borrow, and changes for property investors make owning rentals less attractive. All these pressures are adding up.
"It's hard to know which factors are doing all the work, but markets seem to be losing steam a bit earlier than we might've thought. We forecast a fall in house prices in the second half of this year of about 3%, but now we've doubled that. The excess demand that pushed prices up so aggressively has started to drop. So, with the supply side rising, we're looking at a much more balanced market, which is ultimately a good thing."