The property market has peaked according to latest market research, with any increase in the rate of unemployment likely to put further pressure on price growth.
CoreLogic NZ's latest property market and economic update said the total value of residential real estate reached $1.72 trillion in the three months ended 2021, compared with $1.35t the year earlier.
Mortgages were secured against 19 percent of that value, while household equity accounted for the balance of 81 percent.
Despite the high rate of homeowner-equity, CoreLogic chief property economist Kelvin Davidson said there was reason for caution as the level of household debt was high relative to income.
"We suspect that by mid-2022 the balance of power could tip towards buyers," Davidson said, adding that much depended on continued low unemployment and wage growth.
"To some extent the debt has only been sustainable recently because of low mortgage rates."
Despite the price pressure, Davidson said anyone hanging out for a major bargain may be disappointed.
"With unemployment still low, the story is more about much slower growth in prices rather than meaningful falls."
He estimated average property value growth could slow to single digits in 2022, from almost 30 percent in 2021, as rising interest rates drive up household costs, in addition to other bank lending restrictions.
"Owner-occupiers now face a much smaller availability of low-deposit loans, while the CCCFA (Credit Contracts and Consumer Finance Act) regulations have caused far more disruption than expected.
"While any further rate rises could be smaller and slower than those experienced in the second half of 2021, we can't overlook the fact that about 60 percent of existing loans need to be refinanced within the next 12 months."
Davidson said all borrowers would face significant mortgage rate increases, with a further rate hike expected to be announced when the Reserve Bank reviews the OCR in February.
"Anybody who fixed for a year in about April/May 2021 could potentially see their mortgage rate double when they review mid-this year, which can have a significant impact on household budgets," he said.
In addition to the rising interest costs, CoreLogic data indicated sales activity had slowed in reaction to recent changes to lending and tax rules.
"Towards the tail end of 2021, there were clearer signs of an easing in the tight supply/demand balance in many parts of Aotearoa.
"Wellington and Dunedin have seen total listings rise quite noticeably, as new stock flowed into the market but transactions eased."
Davidson said another theme for 2022 would be construction, in terms of output, capacity, and cost growth.
He said it was clear that mortgaged investors' appetite to purchase property had waned, although there would still be demand for new-builds, which were exempt from some tax changes and lending restrictions.
"Clearly, the LVR (loan to value bank lending restrictions) and tax system now incentivise both owner-occupiers and investors to seriously consider a new-build purchase.
"While this should give developers confidence to keep building more new houses, new dwelling consents could tail off a bit as the cost to build becomes too much for some households."
Davidson said economists would be watching unemployment closely, with any slowdown in the labour market posing a further risk to house prices.