New Zealand’s unemployment rate, set to rise this year, will likely sap demand for housing, offsetting the benefits of falling mortgage rates, according to ANZ bank’s Property Focus report.
“As far as the property market goes, all eyes will be on the job market, with anecdotes and evidence pointing to a rapid rise in the unemployment rate,” economists at the bank said in their monthly report.
The bank’s property gauges for January indicate a base may be forming in the property market, with housing, while still ‘expensive,’ now the most affordable in two years. The median house price fell 4.8% to NZ$337,500 in December from a year earlier and prices will probably fall further in 2009, according to the report.
“The Reserve Bank is providing support by cutting interest rates aggressively,” ANZ economists said. “But such action needs to be read in conjunction with the economic climate and a world-wide recession.”
Fixed-term mortgages have now ‘caught up’ to variable rates, with terms of 6 months to 5 years now close to 7%. As the central bank cuts the official cash rate further, short-term rates are likely to fall further than longer term rates, creating a positive yield curve for the first time in almost a decade, ANZ Bank said.
“At some stage, borrowers may wish to consider taking a step up into a more expensive longer-term fixed rate if they would like longer-term certainty,” the bank said. Still, “by remaining floating, or fixing for just six months, you will have the benefit of being able to review the situation later in the year.”
New Zealand’s unemployment rate will probably jump this year in the face of a faltering economy and the global financial crisis, Prime Minister John Key said this month.
The jobless rate could climb to 7% later this year from 4.2% currently, and reach 7.5% in 2010, Key said after a briefing from the Treasury.