2022 was a significant year for the property market. After the supercharged pandemic period, where house prices rose by as much as 40% in some areas, the heat largely left the market through 2022.
Here are five key things that happened over the year.
Interest rates rose
A big driver of the softness in prices over the year was the increase in interest rates.
From a Covid low of 0.25%, the Reserve Bank hiked the official cash rate significantly as it tried to curb a big lift in inflation. That put pressure on retail rates, too, taking the average one-year rate for new loans from 3.17% in June 2021 to 6.18% by October 2022, according to Reserve Bank stats.
The increased cost of servicing those rates made some buyers a little more hesitant about the prices they were offering to pay.
House prices softened
Real Estate Institute data showed a 10.9% decrease in house prices in the year to October, the biggest year on year decrease that it had ever recorded.
At a regional level, Auckland and Wellington had the steepest declines in prices over the year. In October, Auckland prices were down 12.7% year-on-year while Wellington prices were down more than 17%.
The Reserve Bank also noted that a small proportion of recent buyers would be in negative equity, particularly if they had bought at around the peak of the market in late 2021.
Lending rules were tweaked
New responsible lending requirements were introduced via the Credit Contracts and Consumer Finance Act in late 2021. But it didn’t take long for mortgage advisers, banks and buyers to find that the new rules were not having the intended effect. Instead of clamping down on irresponsible lending, many borrowers that would have been eligible for loans just a few weeks earlier were now being turned down for loans over spending such as trips to Kmart.
The Government responded with some changes to the requirements, and in August, lenders were given some further leeway on the expenses that they needed to take into account in affordability considerations, and their assumptions on things like credit cards.
Affordability improved
Although rising interest rates make home loans more expensive, falling house prices have helped make buying a first home a bit more affordable. CoreLogic data showed the median first-home price had fallen over the year, and that reduced the deposit that buyers needed to save to get in the door.
Combined with a substantial increase in listings available to choose from, and a drop in competition for available houses, that prompted some buyers to start to think about dipping their toes back into the market.
Debt-to-income ratios were considered
The Reserve Bank has been pondering introducing a debt-to-income ratio rule. This would limit the size of loan that lenders could offer borrowers in proportion to their incomes. In November, the Reserve Bank said it was not likely to introduce these until at least March 2024 and were considering a multiple of seven, meaning someone with a household income before tax of $100,000 could borrow up to $700,000.
Like to talk about what 2023 could bring?
It is predicted that things may start to change for the housing market in 2023. If you are planning to make a move, or buy your first home next year, now could be a good time to start getting ready. Get in touch today to talk about how we can help.
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