Following the Reserve Bank’s (RBNZ) announcement today Wednesday the 19th of February that it is reducing the Official Cash Rate (OCR) by 50 basis points to 3.75 percent, I thought you would be interested in knowing what impact I see this having on the housing market and interest rates.
This is the first review of the OCR for 2025 with another six to follow, the next been scheduled for the 9th of April. For mortgage rates to continue falling in 2025 successive cuts are going to need to be made to the OCR by the Reserve Bank. As I’ve talked about previously managing borrowers’ expectations around where interest rates might fall to is important. I do not see us getting back to the very low mortgage rates that we saw during the pandemic. This was a once in a generation event with central banks around the world having learnt what happens to inflation when they make the cost of borrowing money too cheap. It’s anyone’s guess as to what level mortgage rates will ultimately fall to but mortgage rates look likely to continue falling for the foreseeable future albeit the banks have noticeably slowed the reductions been applied to their advertised rates. At present many homeowners are still electing to fix for 6 or 12 months believing that interest rates will continue to fall. I continue to agree with this current strategy but there is more evidence mounting that we might be closer to the low point for interest rates than many think. Again, you need to decide what fixed term is best for you based on your own financial circumstances. Most people want to have certainty with their loan repayments as a home loan is their biggest financial commitment.
Property values nationally have fallen by nearly 18% from their post-Covid peak. Roughly three years on from this peak, Wellington and Auckland have seen the largest declines in values among the main centres, down by around 25% and 22% respectively. At the other end of the spectrum, values in Christchurch have fallen by “only” 7%. This is not great news for homeowners especially those that purchased around peak levels, but ultimately the downturn conditions are most favourable for recent buyers. The latest housing data shows that after a record low of new listings for any December, sellers started the new year strong by leaping into the market in January. New listings have returned to levels not seen during January since 2015 as nearly 9,000 new listings came onto the market last month. Auckland experienced the highest stock level since January 2012 with 11,465 properties available for sale last month. Stock levels remained high during January, up 18.9% nationally year-on-year to 32,412 properties with fewer than 4,000 homes selling across the country.
The national average asking price had sat between $840,000 and $890,000 for the past two years, and the start of 2025 saw this trend continue, with January’s national average asking price at $868,969. This was down just 1.3% year-on-year. The biggest increase was in the West Coast, up 6.3% year-on-year to $505,151, while Coromandel saw the biggest decline, down 20.3% year-on-year to $1,004,312. Four regions – Auckland, Hawke’s Bay, Nelson, and Southland – saw prices grow both month-on-month and year-on-year, while Coromandel, Waikato, Wairarapa, and Wellington recorded declines.
Focussing on Wellington the region continues to face challenges. While mortgage rates have decreased, other market forces such as high stock levels, increasing unemployment, lower net migration, and job insecurity is resulting in a largely soft market for the time being. In 2024 there was a significant number of unsold properties with more having been brought to market in the New Year. This is providing buyers with plenty of choice, reinforcing the fact that it remains a buyers’ market. Buyers are showing a lack of urgency and continue to take a cautious approach in their purchasing decisions. It’s likely that Wellington will see a continuation of the flat market seen throughout 2024. Wellington City’s new rateable valuations recently released show that on average house values have plummeted 24.4% since 2021. Capital values have fallen across every suburb between 12.1% and 29.3%. The average house value is now sitting at $1.08 million. It’s important to stress rating valuations are a snapshot of the market at a point in time. When the council last assessed house values in Wellington it was during the pandemic and borrowers could secure a mortgage rate at their bank with a 2 in front of it. Local councils set their rating valuations accordingly. Vendors who are still clinging to what their property was worth potentially in September 2021 will now need to adjust their expectations.
Looking further into 2025, there will be both challenges and opportunities in the market. Lower mortgage rates will obviously be beneficial to borrowers but cost of living pressures continue to see many people doing it tough with rising house and insurance costs and general nervousness of having secure employment which all continue to weigh on the outlook for the housing market. High loan-to-value ratio (LVR) lending still faces restrictions and debt-to-income (DTI) limits could become a much bigger consideration for some borrowers in the first half of the year. Despite economists expecting annual inflation to drop to a four-year low, it failed to budge in the December quarter, and there are fears a “reacceleration” could be on the cards later this year with rising rents being the largest contributor to the lack of change. Local council rates also contributed to the inflation rate, up 12.2% in the 12 months to December. This stagnation is contributing to expectations of further OCR reductions happening in 2025. Despite OCR cuts, New Zealand’s economy remains under pressure, with subdued activity across key sectors and a weakening labour market. An increasing number of New Zealanders are now leaving for work opportunities overseas many planning to reside offshore permanently.
Please let me know if you would like to discuss the current mortgage rate that you are on with your bank or are needing assistance with finance to purchase a new property or to refinance.
Kind Regards
Simon
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