Growing Pressure on Mortgage Holders

Following yesterday’s not-so-anticipated 0.75% gain, fixed mortgage rates could be pushed above 7% in the coming months as the OCR could rise another 0.75% next February. High, said CoreLogic.

Thursday, November 24, 2022 at 11:48 AM

Sally Lindsay

Given that inflation has proven more difficult to eradicate than previously expected and that the OCR is set to rise to 5.5% OCR from next February onwards, floating rates will rise soon, Fixed rates are also unlikely to peak, he said. Kelvin Davidson, CoreLogic’s Chief His Property Economist, said:

“After some ‘sprouts of optimism’ began to emerge in early October, stubborn inflation somehow pushed the country into ‘Phase 2’ of the property market downturn,” he said.

Based on the existing average fixed mortgage interest rate of 3.8% across loans, the biweekly mortgage payment for each $100,000 of debt (30-year term) is approximately $215, or approximately $5,590 annually. But if he then refinanced to the current 6% interest rate, his repayments would be $1,602 a year, or more than $8,000 for a $500,000 loan.

With a potential future interest rate of 7%, a $500,000 loan sees a change of about $12,000. In doing so, it is important to point out that while 20% of mortgages are fixed, the price will change within the next six months.

As always, however, some prospects are assured and the labor market will continue to be a key driver in the coming months, Davidson said.

If the unemployment rate can be kept relatively low, most borrowers will continue to pay off their loans (even with higher mortgage rates and negative equity becoming more common). Started by an increase in mortgage sales.

“Overall, the weak real estate sales volume is likely to continue next year. Perhaps after sales of about 67,000 this year (the lowest since 2010), there is a chance of a slight recovery to about 68,000 next year.” .

Meanwhile, the decline in real estate prices isn’t over yet, and offers opportunities for first-time homebuyers, he said.

The labor market is being watched closely and there are signs that the OCR is “overshooting,” Davidson said, so the rate may need to be lowered significantly.

In fact, this is a very ‘hawkish’ decision by the RBNZ, indicating that the OCR may eventually have to rise to 5.5% next year. The RBNZ does not expect CPI inflation to drop below 7%, but the economy could slip into a small recession perhaps by the middle of next year, and unemployment could be creeping up. (However, unemployment is higher due to an increase in the labor force rather than mass employment). loss). They also expect an eventual decline in house prices (CoreLogic Home Price Index) could be -20% by the end of next year.

So what does all of this mean for the housing market?

tag: OCR

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