Market update: The waiting game continues, but more expecting rate falls in 2024

Post by John Bolton – Squirrel Founder

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

Somehow, we’re already a month into 2024, so it’s time for our first regular market update of the year.

This month, we’ll cover all the usual stuff: what’s going on in the world of interest rates, house prices, and any other big things impacting the housing market right now.

So, let’s get stuck in.

The Reserve Bank is giving nothing away at this stage, but more and more of the market is expecting rate falls this year

We got a brief, unofficial update from the RBNZ late last month, via its Chief Economist, on its view on the future of interest rates.

The key takeaway was that its stance hasn’t changed since November last year (its final Official Cash Rate announcement of 2023), when the indication was we’d be waiting until early 2025 before it made any moves to drop rates again.

So, in other words, it’s not pushing for rates to go any higher, but any meaningful relief is — in the RBNZ’s eyes — at least 12 months away.

But increasingly, considering NZ’s slowing economy and low retail sales — reinforced last week by the latest GDP and inflation figures, which came in even lower than anticipated — the consensus across the market is that that date will be brought forward.

Although the latest employment data, released in the last few days, was stronger than expected (causing some economists to backtrack) I’m still firmly in the camp that rates will starting fall from the middle of this year.

In recent weeks, we’ve seen a few of the banks lower some of their fixed-term rates ever so slightly, bringing them back down around the 7% mark. It’s not the start of any major rate decreases just yet, but it’s where I’m expecting interest rates to stay until we get a clearer directive from the RBNZ.

For anyone looking to fix, my guidance would be to go for a one-year term, which we’ve typically been getting at a rate of around 7%.

If you’ve been with your bank for three or four years, it’s worth looking into refinancing. There are some great cash-back deals out there at the moment, which could make it well worth your while and potentially help to alleviate some of the pressure of dealing with the added cost while rates are still high.

The housing market is in a bit of a state of flux

A couple of key factors could influence how things play out on the house price front this year: movements in the supply and demand equation, and immigration.

Activity in the market is certainly up from where it was, and that’s true of both buyers and sellers.

In recent years, we’ve seen lots of buyers hold off in the face of rapidly rising interest rates, and would-be sellers deterred by falling house prices and a generally soft market. So, this heightened level of activity results from those groups seeing a bit more stability out there and feeling confident to dip their toes back in again.

Property investors are also starting to make their return to the market, in the wake of last year’s election result and the reinstatement of tax benefits on rental or investment properties.

After consent levels reached record highs in 2022 (before dropping off again last year), we’re also seeing many residential development projects coming to completion, which will help with residual stock levels.

Immigration is running hot, and a few people have suggested that that’s likely to drive inflation and added demand in the housing market.

As far as I can see, given the sort of immigration we’re getting — primarily people on visitor and working visas — both feel pretty unlikely.

It will create a bit of pressure in the rental space, but many people making up these immigration numbers won’t be home buyers. And on the inflation front, I think it could end up helping to suppress wage inflation and keep prices down — although that’s arguably not great news for Kiwi hoping to earn a bit more this year.

So, supply and demand should be relatively balanced, and I’m not expecting to see too much upward pressure on house prices

The impacts will be different across the market demographics. Some regions will stay quite soft, while others — where there’s plenty of demand from first home buyers and investors — could do quite well.

The broad expectation is that we’re in for a slight recovery in house prices this year, somewhere between 5% and 10%.

Bear in mind that house prices had fallen in “real” terms, by about 30% in Auckland and 35% in Wellington. That means any gains made in 2024 regarding house prices will only be a partial recovery.

And exactly what that looks like is anyone’s guess.

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