NZ property market update – June 2024

Housing Market Written by John Bolton, Jun 10 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:

Between the Government’s Budget announcement, another OCR update, and a few other big changes impacting Kiwi homeowners (and would-be homeowners), there’s a whole lot to catch up on from over the last month.

So, let’s jump into our latest market update and look at what’s been going on with the New Zealand housing market, interest rates and the wider economy in recent weeks.

The Reserve Bank’s latest OCR verdict on 22nd May was surprisingly hawkish – but I’m still expecting rate falls to come earlier than it’s predicting

Even as it made the call (yet again) to hold the OCR steady at 5.5%, where it’s been for over a year, the RBNZ had some choice words to share as part of its latest OCR announcement last month.

Although most inflation figures are tracking downwards as hoped, domestic inflation is proving tricky to beat. As a result, the RBNZ has said it hasn’t entirely ruled out the possibility of another interest rate hike before the end of 2024.

It won’t be the news anyone wanted to hear, but in my opinion, it feels more like a defensive tactic from the RBNZ than anything else.

It will have been worried that wholesale rates, a big factor behind how banks set their mortgage rates, had started to price in the possibility of an OCR cut towards the end of this year — and wanted to head that off at the pass. So that rhetoric, in my mind, is simply about the RBNZ getting ahead of the possibility of any premature mortgage rate cuts before it’s confident inflation has been beaten.

Inflation statistics are backward-looking and released quarterly. The crucial update will come following the September 2024 quarter, by which time most economists expect annualised inflation to have fallen below 3% and, therefore, back within the RBNZ’s target range. The next OCR announcement after that is in November, which could be the point when interest rates start to come down again.

Either way, with all the other poor economic data we’re seeing and the anecdotal feedback I’m getting from clients about how tough it is out there right now, I can’t see rate cuts being as far off as the RBNZ is currently predicting.

Although the official word is that interest rates will start to fall before the end of 2025, my expectation is that they’ll start to come through towards the end of this year or perhaps early next.

The best one-year fixed rate we’re seeing in the market at the moment is 6.85%. My recommendation to anyone looking to fix or refix a mortgage right now would be to shop around. If you’ve been with your bank for a while, then look into the option of refinancing to a new bank. There are some great cashback deals available for those who make the switch.

Government also delivered Budget 2024 late last month, bringing with it with tax cuts and the end of the First Home Grant scheme

Overall, this Budget announcement felt pretty benign.

Of course, the promised tax cuts were delivered as part of a change to tax thresholds. For a couple earning $150,000 per year, the cuts will mean an extra $40 a week in the back pocket — or about $2,000 yearly. So, it’s not enough to make a meaningful dent in the extra mortgage costs many households face right now, but it all helps.

The other big news delivered in the lead-up to Budget 2024 was the Kāinga Ora First Home Grant scrapping. The scheme has been in place since 2010, offering aspiring homeowners a cash incentive of up to $10,000 per eligible borrower when purchasing a new build and $5,000 on an existing home.

To be eligible to receive a First Home Grant, household income had to be less than $95,000 for an individual, or $150,000 combined for two or more buyers — and regional house price caps also applied.

For buyers living in metropolitan areas, like Auckland and Wellington, the removal of the Grant will go largely unnoticed. House prices and incomes in these regions have typically been too high for many borrowers to meet eligibility criteria anyway.

In provincial New Zealand, though, the opportunity to earn a little extra cash will undoubtedly be sorely missed.

Kāinga Ora’s First Home Loan scheme is still available, helping low-income households into their first home with as little as a 5% deposit. Because the loan is underwritten by Kāinga Ora, you also get excellent mortgage rates and good cashbacks – so it’s a great option for those who need extra support. 

Meanwhile, for good earners who (for whatever reason) have struggled to save up a deposit, Squirrel’s Launchpad is also available to help you get across the line with just a 5% deposit saved.

We’ve also had more proof, not that we needed it, that Kiwi are doing it incredibly tough right now

The latest mortgage arrears (or “non-performing loan”) figures were released earlier this month. The number has grown by another 7%, meaning roughly $1.9 billion worth of home loans are now behind in payments.

Business confidence fell another 4 percentage points in the lead up to the Budget announcement, and consumer confidence — although up slightly — is still very low.

Between all that and the fact that GDP and retail sales figures continue to be weak, the economy looks like it will be in rough shape for a while to come.

Things remain pretty flat in the housing market at the moment, but the foundations are there for a bit of a comeback in 2025 

As I’ve mentioned in some of my earlier updates, there have been many listings coming onto the market in recent months. We’re also seeing quite a lot of excess stock around from development projects completed over the last couple of years, while people have been less keen to buy.

Although there *are* buyers out there, market conditions (high interest rates limiting borrowing power and all that choice) mean they’re not really in any rush to buy.

That’s meant vendors have had to become a bit more realistic regarding price expectations — particularly in instances where they need to sell — and that’s helping to hold prices down right now.

I’m expecting the housing market to stay pretty flat over the rest of 2024. In certain parts of the market where there’s less demand, prices may even have slightly further to fall before things stabilise later in the year.

My pick is that things will start looking up in 2025, once interest rates have come down a bit, and the impact of lower build activity levels over the last 12-18 months starts to trickle through, meaning there’s not such an oversupply of housing stock out there.

Throw some more immigration into the mix, and that should all see house prices start to come back again, with most economists picking house price inflation of somewhere between 5-10% in 2025.

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.

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