Market update: Economic pain will be borrowers’ gain (eventually)

Housing Market Written by John Bolton, Mar 21 2024
Post by John Bolton - Squirrel Founder

Post by John Bolton - Squirrel Founder

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

Another month has rolled around, which means it’s time for our latest market update. Here’s what’s been happening out in the world of house prices, interest rates, and in the wider New Zealand economy over the last few weeks.

A recent flood of property listings is helping to hold house prices steady

There’s been a huge flurry of listing activity in the market over the last six months.

It’s not unexpected. All the would-be sellers who’d put their plans on ice the last couple of years (while prices were falling) had to step back into the market at some point, and they’ve done it en masse.

This surplus of supply means a couple of things:

  • Buyers are pretty spoilt for choice at the moment.
  • Any major recovery in house prices is unlikely, at least for the time being.

The other big factor at play here is immigration. People have been watching the numbers with keen interest, expecting it to create some real upward pressure on house prices.

But, as I’ve said before, a lot of the immigration we’ve had to date is the sort that’s going to impact the rental market far more than the housing market. The time will come when New Zealand’s growing population does start to flow through to house prices, but we’re not there yet. 

So, although some commentators were sure we’d see prices bounce back by up to 10% this year – maybe even more – in my opinion the conditions just aren’t there. We’ll probably get a slight increase in prices this year, but it won’t be to that level.

New Zealand’s economy is still in rough shape

Recent economic data has painted a pretty bleak picture – and I don’t think we’ve seen the end of that trend.

We’ve had eight consecutive quarters (two years) of declining retail sales in terms of units sold. In the last year alone, retail sales fell by about 6% on a per capita basis, which is a lot by any standard.

The wider economy has stalled in recent months, too, as evidenced by poor GDP numbers. Our latest GDP announcement (for the December 2023 quarter) told a pretty sorry story – New Zealand is once again in a technical recession after two consecutive quarters of negative growth – and that trend will likely continue in June’s update too.

As well as the strain of higher mortgage rates, council rates, and insurances costs, business owners are facing the added struggle of covering higher salary costs at a time when sales are dropping. Right now, as a result, the proportion of business owners that have fallen behind on their mortgage payments is about three times higher than among homeowners on PAYE salaries.

It's really tough out there for business owners, and that doesn’t bode at all well for the wider economy.

But that economic pain will ultimately end up being good news for mortgage borrowers

Now that the RBNZ has delivered on its promise from late 2022 - when it said it wasn’t afraid to tip us into recession if that’s what it took to get inflation back under control - all that's left to do is wait. 

As evidence of the damage done continues to mount, that will be what prompts the RBNZ to start dropping rates again.  

The rhetoric coming out of the RBNZ right now is still that it’ll be late 2025 before that happens, but I suspect they’ll be singing that tune right up until the moment they announce that first Official Cash Rate cut.

From my perspective, I’m still expecting rate falls to start from the middle of this year.

Competition is really heating up between the banks in the mortgage space right now

That’s why we’ve seen so many headlines about the key players dropping their fixed-term rates in recent weeks.

A lot of that is down to Kiwibank’s growing influence. It tends to price more competitively than the Big Four as a baseline – and it’s reached a size in the market where the big banks can’t afford to ignore that anymore.

The most competitive space at the moment is the popular one-year fixed term, which we’re seeing at anywhere from about 6.89% through to 6.99%.

There are still some great cash backs deals available too, for those in a position to refinance or buying a new property. You can get back anywhere up to about 0.8% of the total loan amount.

If you’re coming up to a rollover soon, or looking to take out a new loan, it’s worth chatting to a friendly mortgage adviser who can help find the best solution for you.

The opinions expressed in this article should not be taken as financial advice, or a recommendation of any financial product. Squirrel shall not be liable or responsible for any information, omissions, or errors present. Any commentary provided are the personal views of the author and are not necessarily representative of the views and opinions of Squirrel. We recommend seeking professional investment and/or mortgage advice before taking any action.

To view our disclosure statements and other legal information, please visit our Legal Agreements page here.

We can help. Have a chat to one of our advisers.