Following the Reserve Bank’s (RBNZ) announcement today Wednesday the 27th of November that it is reducing the Official Cash Rate (OCR) by 50 basis points to 4.25 percent, I thought you would be interested in knowing what impact I see this having on the housing market and interest rates.
This last review of the OCR for 2024 leaves a considerable amount of time now until the next on the 19th of February 2025. With this latest OCR reduction, the RBNZ’s expectation is that the banks will continue to pass along these cuts now to their home loan customers in respect to the mortgage rates advertised. As I’ve talked about previously managing borrowers’ expectations around where interest rates might fall to is important. For mortgage rates to continue falling successive cuts are going to need to be made to the OCR by the Reserve Bank. 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 low to stimulate economic activity. It’s anyone’s guess as to what level mortgage rates will ultimately fall to but with the Reserve Bank making an earlier than expected cut to the OCR mortgage rates look likely to be reducing with some consistency again. At present many homeowners are electing to fix for 6 or 12 months believing that interest rates will continue to fall. I agree with this current strategy. 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.
New Zealand’s property market is currently giving mixed signals - prices have declined and sales have risen, but overall activity is still subdued. The CoreLogic NZ November Housing Chart Pack showed property sales activity increased by 16% in October compared to the same time last year. This was the 17th increase in the past 18 months. However, sales volumes remained 10–15% below typical seasonal levels, reflecting cautious buyer behaviour amidst ongoing affordability challenges. Despite a big rise in sales activity to 78,360 over the past 12 months, volumes were still well below the long-term annual average of 90,000 sales. The abundance of listings on the market is providing buyers with significant choice, allowing them to take their time and negotiate favourable deals.
This buyer caution is reflected in the CoreLogic Home Value Index, which has recorded eight consecutive months of decline, with national property values now 18% below their post-Covid peak. There were 11,549 new listings over the four weeks ending November 3, compared to 10,611 at the same time last year. There were 28,954 listings on the market overall, which was an increase from 25,850 the same time last year and up on the five-year average of 23,032. The West Coast experienced lower than last year in terms of total listings on the market, but key regions such as Wellington, Bay of Plenty, Auckland, and Otago had all risen by at least 15%.
First home buyers set a record last month, making up nearly 28% of purchases in October thanks to lower property prices and reduced competition. Meanwhile investors are also showing signs of returning, with mortgaged multiple property owners accounting for 23% of purchases thanks to falling mortgage rates and easing loan-to-value ratio restrictions. Annual inflation has returned to the Reserve Bank’s target range of 1–3%, which is contributing to expectations of further OCR reductions in 2025 but despite recent OCR cuts, New Zealand’s economy remains under pressure, with subdued activity across key sectors and a weakening labour market. With the above in mind a strong, near-term housing market rebound might not be on the cards just yet despite falling mortgage rates as credit remains constrained for some buyers. High loan-to-value ratio (LVR) lending still faces restrictions and debt-to-income (DTI) limits will start to impact the borrowing power of many people as mortgage rates reduce. These credit constraints, a higher level of housing stock, many people doing it tough financially with rising house and insurance costs and general nervousness of having secure employment all continue to weigh on the outlook for the housing market.
In recent days we have seen some of the banks stop issuing home loan preapprovals to new-to-bank customers even when they have a 20%+ deposit. Live applications can still be approved. Despite the banks explanation given to mortgage advisers for this change in policy I believe this is due to the increased bank capital buffers that have been mandated by the Reserve Bank. These capital buffers are being incrementally introduced for all banks in New Zealand with the latest requirement happening on the 1st of July 2024.
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 refinance.
Kind Regards
Simon
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