Sir John Key has revealed what he thinks would have to happen for New Zealand's property market to crash.
Sir John's comments come as Aotearoa faces skyrocketing cost of living, high inflation and dropping house prices.
New Zealand's annual inflation rate was 7.2 percent in the September quarter, down slightly from its peak of 7.3 percent in June, but well above the Reserve Bank of New Zealand's target of 1 to 3 percent.
As a result the RBNZ has been steadily increasing the Official Cash Rate (OCR) which is currently at 4.25 percent.
Inflation and rising mortgage costs have seen house prices dip a whopping 7.5 percent annually, according to the latest figures from the Real Estate Institute of New Zealand (REINZ).
REINZ data shows median house prices across the country decreased from $892,000 in October 2021 to $825,000 in the same month this year.
The steady decline has been causing concern for homeowners - especially those who bought at the market's peak and are now facing the possibility of negative equity.
But in a Facebook video for his son Max Key's property development company, Sir John said two fairly big things would have to happen for the housing market to really crash.
The former Prime Minister and ANZ NZ Chairman said one reason the housing market is unlikely to crash is because even though interest rates have gone up substantially and inflation has barely dropped - many homeowners still haven't rolled over to the higher rates. Sir John said as people roll over, the need for further aggressive increases could be mitigated.
"One thing that's really interesting at ANZ, of our customers who borrowed for a home loan up until about a few weeks ago, 57 percent of them still had a mortgage that either had a two in front of it or three in front of it," Sir John said.
"So they're going to have to roll off very soon in the next six months and when they roll off they're going to roll off onto something with a six in front of it, maybe even higher. So you can't tell me that isn't going to have a dramatic impact on people's capacity to go out and buy everything from pizzas to a new frock."
Sir John said even if the country goes into a recession - which it is broadly expected to do in 2023, the property market is unlikely to crash.
"When we look at recessions we look at property at ANZ and there are only two things we worry about, do people have a job and how much are they paying for the money?
"At the moment unemployment's down at 3 percent. Well, when I came in as Prime Minister in 2008, the first thing Treasury told me was they expected unemployment to peak at over 10 percent… Now I don't think you will see anything like that in New Zealand going forward.
"I think maybe unemployment rises, maybe it goes to 3.5 or 3.7, maybe a few people get laid off, but I don't think it's anything like that [10 percent]."
Sir John said ultimately for the market to crash interest rates would have to skyrocket and the job market would have to completely fall apart.
"To really, really, really get the property market to really crack you'd have to have interest rates going through the roof from here and you'd have to have labour markets going through the floor.
"We do all of that stress testing of our balance sheet at ANZ and even then we see property prices down obviously from where they are and pretty significantly down but that's armageddon," he said.
It comes amid increasing concern over the economy. On Thursday the Employers and Manufacturers Association (EMA) called on the Government to reconvene the Business Advisory Council it used during COVID-19.
The EMA said people with knowledge of the business world need to advise the Government through the looming economic crisis.
