As good as it gets?

Following the Reserve Bank’s (RBNZ) announcement yesterday Wednesday the 9th of July that it was leaving the Official Cash Rate (OCR) unchanged at 3.25 percent, I thought you would be interested in knowing what impact I see this having now on mortgage rates and the housing market.

The RBNZ’s key reasons for keeping the official cash rate on hold, as expected, included continued economic uncertainty and the risk of higher inflation. While there’s debate within the Reserve Bank’s monetary policy committee about where interest rates are headed, it’s clear that rates have either bottomed out already or have only a little further left to fall. Whether we see another cut made to the OCR on the 20th of August will depend on what is happening to the economy at the time and where inflation is sitting. Economists say the extent of further interest rate falls is now up in the air and the OCR could bottom out at 3%. As the RBNZ noted yesterday the economic outlook remains highly uncertain. Borrowers probably need to start preparing themselves for the likelihood that we will see a period of sustained zero movement on mortgage rates and eventually some slow upward movement as and when the Reserve Bank needs to intervene. It’s been great to see mortgage rates falling consistently since August 2024 from their post pandemic highs but it’s obvious that the cost of servicing a home loan is not going to become much cheaper. It’s unlikely the banks will reduce their advertised mortgage rates following this latest OCR decision but it’s still early days. Going forward homeowners need to structure their repayments appropriately deciding on what fixed term is best for them based on their own financial circumstances.

Looking at how the NZ housing market is currently performing just released data shows the capital's housing market remains in a slump - down 25.4% since 2021. Overall, the picture in the capital remains grim and could be about to get worse. Values have tracked backwards slightly over the last few months in the Wellington region and the market continues to be relatively soft as we head into the winter months. The region’s average home value fell 1.4%, to $829,215, in the last quarter - 4.9% lower year-on-year, and 25.4% below the previous peak of late-2021. Wellington City fell 1.8%, Hutt City was down 2.3%, Porirua dropped 1.4% and Upper Hutt dipped 0.2%. That bucks the national trend where values have inched up, albeit just 0.1%, to a new national average of $913,772 in the May quarter. Overall economic confidence remains soft in the capital, with the region still reeling from the impact of public service job cuts. Despite mortgage rates now being significantly lower, these rate drops have not seen an increase in property values and it’s likely the region will require economic conditions to improve before we see a strengthening market. There remains an oversupply of rental properties available in the capital with rents falling to their lowest levels since 2022.

Nationally most of the major banks have now revised down their forecasts for how far house prices will increase this year. Many are stating a 2% increase only now. While 15% more houses are selling than the same time last year, about in line with the long-term average, there is still a large number of homes available for sale. This means buyers have a lot of choice and do not need to bid up prices to secure a property. Unsold inventory remains around 10-year highs, so buyers have both more time and more choice. Recent local council property (de)valuations in Wellington and now Auckland just reinforce this tilt in the balance of market power. First home buyers are still active albeit attendance at open homes has been declining, while there continues to be a lack of activity from investors.

Looking at the NZ economy times are tough for people running a business. There has been a 14% rise in business defaults across all industries. Company liquidations have risen 27% year-on-year, partly due to increased enforcement activity by the IRD. The construction sector has been hit the hardest – with more than 750 building firms having gone into liquidation in the past 12 months. Businesses, particularly in construction, property, and hospitality, continue to face significant challenges. The highest rates of business failures have been in residential construction, property development and operations, hospitality (especially restaurants and cafés), and road freight transport.

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