The ‘Year of the Tiger’ has kicked off with a hiss and a roar, however, we know housing market indicators already look a lot different into 2022 than they did last year.

The latest Consumer Price Index (CPI) index inflation data from Statistics New Zealand shows inflation has reached a 31 year peak, noting 5.9 percent growth as we closed 2021.

We note this is well above the Reserve Bank of New Zealand’s (RBNZ’s) target band of one-to-three percent and expect to see further Official Cash Rate (OCR) rises throughout the year; as the central bank fights to retain control of the inflationary monster the pandemic has released.

For the housing market, this is most likely to mean rising mortgage lending rates will be somewhat offset by their still-comparatively low levels.

Financial conditions appear to be the dominant story of 2022 so far, with the rising cost of servicing debt drawing more stringent analysis of borrower capabilities from banks and other financial institutions.

An evolving attitude of caution from policy-makers and those that hold the purse strings are already making it more difficult for certain buyer demographics to secure finance; namely first home purchasers, and those with unsecured income.

Despite this, serious buyers, including families, downsizers and those making the move to Aotearoa (once border restrictions allow) following persistent pandemic related disruption abroad will, however, continue to transact.

The former, encouraged by realised gains from existing property sales, and the latter; how far their overseas dollars go in a new market.

While not immune to market volatility, some of the dark clouds looming on the residential sector’s horizon will be offset by other disruptive factors, and the question Bayleys experts are asking is not whether demand for residential property will continue, but by how much?

Looking ahead, we expect market mechanisms will slow the rate of value growth from the huge 30 percent year-on-year we have seen across the last 12 months.

However, we expect slow and stable house price growth will persist, buoyed by the value of existing property, reengaged buyers, strong job security and higher inflation expectations encouraging ongoing investment.

In-depth reports:

• In its latest report, economic think-tank Infometrics expects unsettling conditions will persist through 2022, however, the push-pull mechanisms across the economy will continue to show New Zealand as one of the strongest performers across the developed world. Thus far, this has been aided by strength in our national housing market, which continues to experience a period of growth, albeit at a more moderate rate, given the introduction of tighter lending controls that are inhibiting heavily indebted prospective purchasers.

• [In one of his weekly Tony’s View reports, independent economist Tony Alexander ponders the possibility the RBNZ could plunge our economy into a deliberate recession should unsustainably high inflation continue.](http://tonyalexander.nz/resources/Tony's%20View%2027%20January%202022.pdf 'http://tonyalexander.nz/resources/Tony's View 27 January 2022.pdf ') His observations of the climate leading into New Zealand’s self-made economic recession in 2008 show persistently rising mortgage lending rates over four years contributed to the average Kiwi consumer reaching their financial pain threshold. It seems that while interest rates are expected to continue to rise much higher than where they are now, historical evidence suggests an implosion of the housing market is little more than a concept.

• In its most recent Property Focus Report, ANZ Bank says a variety of headwinds are set to make for a markedly different housing market in 2022, then we saw in 2021. Where household consumption isn’t expected to be too badly impacted by slower housing inflation, the construction industry and consumer confidence are areas to watch. The bank estimates that New Zealand’s persistent housing shortfall is continuing under construction delays and pandemic related disruption, with an estimated 6,000 new homes delivered for the quarter.

Topical articles:

• In a panel discussion with New Zealand’s real estate experts, Bayleys managing director Mike Bayley told OneRoof he expects the RBNZ’s inflationary control measures will be the single biggest factor influencing residential decision making during the year ahead. He notes that tax exemptions and incentives will encourage buyers toward new-build properties while strong employment prospects will underpin Kiwi’s willingness to invest in the residential real estate market.

• Bayleys head of data and insights Chris Farhi has released his latest Housing Market Update, noting Kiwis would be well-placed to look at overseas examples of Omicron and its effects on global housing markets. For Kiwis at home, December data analysis is difficult, given Christmas and the ensuing holiday period is synonymous with a quieter time on the real estate calendar. Chris offers a pertinent reminder not to panic over recent data releases given it will take some time before we can glean real insights from housing market sales activity.

• Housing market analysis from economic commentator David Hargreaves shows median house prices, according to Real Estate Institute of New Zealand (REINZ) data, have risen some 40 percent since the onset of the pandemic – leaving New Zealand property owners $255,000 richer. He notes the impact of recent value gains for asset owners has created a wealth effect and debt burden with Kiwi household prosperity now inextricably linked to the housing market and its health.

• In a recent edition of the New Zealand Property Market Podcast, CoreLogic’s chief property economist Kelvin Davidson and head of research Nick Goodall discuss the new lending changes and how they are impacting property values across the country. Noting that it will take some time to gauge the mood of the market as Kiwis return from their summer holidays, the team says a key focus for 2022 will be finance but that high-interest rates on their own will not cause a downturn in the property market. Strong employment prospects, wage growth and historical equity gains are expected to encourage more Kiwis to use their resources and transact residential property.

• The government has launched an enquiry into the disruptive Credit Contracts and Consumer Finance Act (CCCFA) which came into play 1 December 2021. Commerce Minister David Clark is quoted as saying “an investigation by the Council of Financial Regulators will determine the extent to which lender behaviour in respect of the CCCFA is a significant factor in changes to bank lending practices.” Bank implementation of the new legislation has been heavily criticised as disproportionately impacting certain buyer classes, despite its original intention being to control high-interest rate debt, and some commentators expect a softening of rules in the future.