NZ housing market update - May 2024

Post by John Bolton - Squirrel Founder

Check out JB's latest market update below, or scroll down to read the full article:

Housing market update (May 2024): Weakness on all fronts, but interest rate falls not yet on the cards according to the RBNZ

We’re back again with our latest update on the NZ housing market and interest rates, and a quick look at what’s been happening in the wider NZ economy over the last few weeks.  

And it’s fair to say that things are in a holding pattern.

The NZ housing market is pretty weak, thanks to an excess of supply and the ongoing impact of high interest rates

We saw house prices fall slightly in March. They’re still down about 20% from their peak – or, if you factor in the impact of inflation over the last couple of years, closer to 35%.

There’s more life in the market now than there was a few months back, but things are slow out there at the moment. And there are a few big drivers behind that.

The first is that we’ve had a lot of new listings flood onto the scene in the last few months. Vendors were biding their time, sitting on the fence while house prices were tracking downwards – keen to sell, but aware that the timing wasn’t quite right – and they’ve all come back to the market at once.

Equally, there are a lot of buyers out there, but they’re pretty spoiled for choice at the moment, so they’re in no particular rush to lock anything in.

We’re also seeing cases where buyers are struggling to meet vendors’ price expectations. With interest rates as high as they are, people can’t borrow as much as they once could. This will continue to have a limiting effect on buyer activity until rates start coming down again.

Some vendors will need to sell more urgently than others, in which case they might be prepared to take a hit on price. As the unemployment rate goes up, we’ll see more and more vendors fall into this camp, which could lead to house prices falling even further.

Where vendors aren’t desperate to sell, they might instead take their properties off the market and wait for another year or so until prices have recovered somewhat. If lots of vendors go down this route, the market will freeze up – there’ll be a lot less activity, but it’ll also help to protect the market against further price falls.

Sticky non-tradeable inflation is holding up interest rates reductions – despite lots of other data suggesting the NZ economy has sustained enough damage

There’s been some good news on the core inflation front recently, but higher than expected non-tradeable inflation has been flagged by the Reserve Bank (and many bank economists) as cause for concern, and a key reason why it’s too soon to think about dropping interest rates.

Despite that commentary, a lot of the other economic data continues to paint a grim picture.

I have zero doubt that the New Zealand economy is already in deep recession – something we’ve talked about extensively on our blog and podcast – and Kiwi will be seeing and feeling that in their own lives every day.

That reality will likely be reflected more strongly in the numbers over the next quarter or two, to an extent where interest rate reductions are back on the table. I’m predicting that’s likely to happen sometime over the course of this year, but some economists, including those inside the RBNZ, are talking about 2025.

What does that mean for anyone fixing, or refixing, their mortgage any time soon?

If you're fixing your mortgage, opting for a one-year term is likely to get you through the current period of uncertainty – and into an environment where interest rates have started to fall. That would be my call right now.

For anyone who’s been with their current lender for at least three years, refinancing your mortgage could also be worth looking into. That timeframe is crucial because it means you’ll be outside the claw-back period on any cash-back deal you might’ve received when you signed up with your current lender.

If you fixed long-term back in the day and are still on great low rates, then the pay-off to refinancing likely won’t be worth it – but otherwise, it’s a great option to free up some extra cash flow.

Depending on the lender you move to, you could get as much as 0.8% of the total loan amount back in your pocket as cash.

If you're looking for advice on whether refinancing is right for you, get in touch to chat with one of our friendly team of advisers today.  

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