After the first level 4 Covid-19 lockdown early last year, house prices surged 30% in year-on-year growth, but property data company CoreLogic’s research head Nick Goodall says it is doubtful this will happen again.

“Reintroduced loan-to-value ratio restrictions and signals from the Reserve Bank the OCR is going to rise, which means historically low bank mortgage interest rates will increase, will keep house price growth at a modest level,” he says.

Goodall says the OCR rise could presumably happen as soon as there is a bit more certainty around this lockdown, rather than necessarily needing to wait until the next “official” opportunity on October 6.

“It’s not a matter of if but when. The Reserve Bank has done the right thing in waiting to lift the rate.

He says how long the lockdown lasts is also a major factor in what will happen to the housing market and economy. The spread of the delta variant of Covid-19 in Auckland means there could be an extended period of lockdown for at least one-third of the population and economy.

To ease pressure on workers and businesses, the Government has already reintroduced the wage subsidy programme and support for affected businesses. This was an important part of limiting the longer-term economic scarring from last year’s level 4 lockdown, by helping to keep people attached to the workforce. The cost of this to the Government will be large but manageable.

“These policies will help keep workers and many businesses on somewhat of an even keel and house prices on a growth trajectory.”

However, Goodall says house price growth is probably past its peak because of stretched affordability.

“We are doing some research now on whether prices are flattening out across the country as a whole.”

ANZ Bank chief economist Sharon Zollner says New Zealand’s housing market – famous for having nine lives – probably has fewer than that now.

“Provided the country avoids a significant income or employment shock during this lockdown, housing market momentum is unlikely to be adversely affected. Households house price expectations have lifted from 5.8% to 6.4% – evidence they consider the housing market to be alive and well.”

Zollner says in the near term, property listings are likely to drop alongside sales, keeping the market tight.

“Further mortgage rate increases have just been delayed, which, all else being equal, is a marginally more persistent tailwind than otherwise.”

There are other things New Zealand can also expect to happen based, this time around, on having knowledge of what occurs when a global pandemic strikes and the country goes into lockdown, says independent economist Tony Alexander.

“Residential real estate activity during lockdown will remain strong. This is happening in New South Wales and Sydney property prices continue to rise strongly.”

He says frustrated property buyers are already queuing up and hoping vendors will decide to get on with their lives and sell.

Once lockdown ends, Alexander says householders will go on a new spending binge supported by feelings of freedom, revenge spending, and the extra near $10 billion sitting in bank accounts beyond what would have been there without a global pandemic.

“Soaring housing wealth this past year will also underpin willingness to spend.”

Goodall says a lot depends on how much people are willing to pay for a property. “Investors might be willing to pay but not able to do so. Reintroduced LVRs will be having an effect and some vendors may have reached their borrowing limits. For first home buyers affordability is a key issue, particularly servicing a mortgage when interest rates rise.

“In the event mortgage rates rose from 2.5% to 4% over a period of time, somebody buying the average property at a value of $922,421, with a 30-year mortgage and a 20% deposit, would see fortnightly repayments rise by roughly $280 – or nearly $7,300 annually.”

He says the medium-term outlook of continued rises in mortgage rates means that borrowers are going to have to divert more money towards paying their mortgage, and some may not be able to access as much home finance as before.

“Either way, this is another headwind for the market, in addition to regulatory changes such as tighter loan to value ratio rules and the phased removal of interest deductibility for investors.”

The biggest factor in the rapid rise of house prices over the past year has been the low OCR, and consequently low mortgage interest rates, designed to encourage borrowing and investment, says Westpac acting chief economist Michael Gordon.

“A lot of the 30% rise in house prices over the past year was really about those record-low mortgage rates and while the shortage of housing was a factor, it’s not something that suddenly came on in the past year. It was very much about the low borrowing cost side of the equation. We think it will work quite strongly in the other direction too."

While Covid-19 has resulted in New Zealand mortgage interest rates falling to their lowest levels ever, at the same time housing debt has hit an all-time high. In the two years between June 2019 and June this year, the country’s housing debt rose 19% to $317.6 billion – with most of that rise coming in the past year to June.

The ratio of debt to disposable incomes has gone from 159% of household disposable income to 167%, but the share of income going to debt servicing is the lowest it has ever been.