The Reserve Bank's quarter percentage point rise in the official cash rate may have put an end to the one "saving grace" in the housing market.
First Home Buyers Club director Lesley Harris says all aspects of the housing market are at present unfavourable to first home buyers. Photo: RNZ / Nate McKinnon
The Reserve Bank has raised the official cash rate (OCR) by a quarter of a percentage point to 1 percent, because of strongly rising prices, a hot housing market, and a tight labour market.
The cash-rate increase puts the OCR back to where it was before the pandemic.
According to First Home Buyers Club director Lesley Harris, the decision will lead to low interest rates slipping away, one of the only factors that has allowed at least some people to get their first new home.
With the amount of money required for a deposit and high house prices, the chances of young people getting their own place just got that much harder, Harris said.
The situation was dire, with all aspects of the housing market at present unfavourable to first home buyers, she said.
"It's certainly rather depressing for first home buyers currently, we're seeing struggles on all the levels you know getting the deposit, finding the house that could be considered affordable and getting the lending, all three areas are super tough at the moment."
The outdated HomeStart grant needed a refresh to ease some pressure on first homebuyers, she said.
"It's certainly rather depressing for first home buyers" - First Home Buyers Club director Lesley Harris
"It's just completely out of date ... if we could see some refreshment or easing of some of the regulations around that and all the different tax ... let's remove the tax.
"Let's make it available for 95 percent of first homebuyers not kind of five percent ... we'd love to see that happening."
Tougher lending criteria had changed the face of home ownership with people forced to make significant compromises on where and who they lived with, Harris said.
The increasing ability to work from home was one silver lining of the pandemic, and Harris said those who did not have to commute into their workplace had more flexibility in the housing market.
"It's not panic stations yet but people obviously need to be prepared" - CoreLogic chief property economist Kelvin Davidson
CoreLogic chief property economist Kelvin Davidson said while the OCR would "definitely" keep moving up, the housing market itself was in slowdown.
He predicted house prices would experience a "modest" fall in the current year, although that was off the back of some huge increases over the last year.
"If the OCR goes up another two or three percentage points that could easily pass through to mortgage rates of pushing 6 percent."
Although many people were insulated by fixed rates for now, homeowners should prepare to re-fix at a higher interest rate, Davidson said.
"People with mortgages need to remember the bank has already tested them at a higher service rate anyway and often that service rate is actually well above 6 percent.
"It's not panic stations yet but people obviously need to be prepared for higher mortgage costs."
About half of loans were due to be re-financed over the next 12 months, he said.
"Lots of people are fixed and that gives them some insulation but there's also a lot of loans rolling off this year so on one hand, yes you're fixed, but that fixed period doesn't last very long."
Although the Reserve Bank had signalled further increases to the OCR, Davidson said if the economy responded to the lower cash rate by slowing down faster than expected, the bank may not need to go that far.
"This is the start of something rather than the end of anything" - Infometrics principal economist Brad Olsen
Meanwhile, effects of tensions in Ukraine and the Reserve Bank's raising of the official cash rate could mean increased costs for consumers at the petrol pump.
With petrol already soaring in price at almost $3 a litre, Infometrics principal economist Brad Olsen said the global markets suggest the unfolding conflict in Ukraine could continue to drive up fuel prices.
"The markets are sort of feeling like this is the start of something rather than the end of anything and the feeling is that with further incursions into Ukraine outside of the Donbas region that's where you will see prices go even higher," Olsen said.
New Zealanders were having to make compromises with their travel as higher fuel prices began eat into their income, he said.
Ongoing discussions in Vienna around getting an Iranian nuclear non-proliferation deal back on the table had the potential to alleviate supply issues, Olsen said.
"If that happens, if you can get Iranian oil back into the system that's about one percent of total oil production that could be quite a big important step to smooth things down and keep a cap on activity."
However, with geo-political tensions on the rise, that option was less likely to have any immediate impact on oil prices, Olsen said.
Western nations had been cautious not to further disrupt the global oil market with sanctions placed upon Russia for its continued aggression towards Ukraine, he said.