Mortgage rate changes are getting interesting as the Reserve Bank’s next OCR announcement looms next week.
The OCR, currently sitting at 4.25%, will be reviewed on Wednesday, February 19.
Ahead of this, ASB economists released their latest home loan report, noting interest markets were "volatile" and could change quickly, which could flow through to mortgage rates.
The report predicts slight easing in fixed rates for terms up to one year in the first half of the year, while longer-term rates may remain stable or even rise, as significant decreases are deemed unlikely.
Borrowers face trade-offs between cost, rate certainty with longer fixed terms, and flexibility with shorter ones. If the Reserve Bank enacts larger-than-expected cuts or if economic threats arise, rates could decrease more than anticipated. Conversely, inflation could keep rates elevated.
Mortgage adviser Jeremy Andrews noted increased bank movement in rates, particularly for one- to two-year terms, and suggested that borrowers consider locking in mid-term rates to secure more favourable borrowing conditions.
Our view: Last week, Westpac offered a three-year rate of 4.99%, which as yet has not been matched. BNZ has a two-year rate of 5.09%. The banks are getting competitive, which could suggest that, given further OCR cuts are on the horizon, interest rates will follow – or in some cases occur even before the official OCR announcement as the banks like to be ahead of the curve.
Covid hangover: 9% of homes selling for a loss (Source)
CoreLogic’s latest pain and gain report counts the losses for those who bought in the Covid market peak and now need to sell.
Nine per cent of homes sold in Q4 2024 went for a loss, including 8.3 per cent of homes and 29.5 per cent of apartments.
The percentage of loss-making sales was highest in Auckland (13.5%), followed by Wellington (9.4%) and Dunedin (6.5%).
Those selling at a loss experienced a median loss of $55,000, whereas those making a profit saw a median gain of $289,500, down from a peak of $440,000 in late 2021.
The length of time homeowners have held their properties is a critical factor; those who made gains had held their homes for a median of nine years, compared to just three years for those selling at a loss.
CoreLogic observed signs of a potential market recovery, particularly with recent mortgage rate declines, suggesting that the market may have found a floor. However, property values remain about 18% lower than their peak, and while conditions are slowly improving, a dramatic boom is unlikely.
Apartments often face more frequent losses because their growth rates are slower, and are often owned by investors who might accept these losses. Overall, the market shows some improvement, but it still feels subdued, with many listings available for buyers.
Our view: People who purchased a property at the peak of the market and secured it using a low fixed term interest rate, are possibly facing the end of their fixed term and may be looking at having to lock in higher rates. This has driven some to sell and face the consequences of selling at a loss. There is a high volume of housing stock on the market that needs to clear before the worm turns in favour of sellers. With more interest rate cuts potentially on the horizon, more buyers may enter the market, increasing competition for housing. The real question here is how long it all will take.
'Pre-wave' of property investors start to appear (Source)
New Zealand's housing market may be on the verge of renewed activity, according to property research firm Quotable Value. Its latest data shows a 1.3% increase in average national prices for the January quarter, although prices remain lower than a year ago.
The average home is currently valued at $913,567 (1.3% lower than last year and 14.1% below the peak in late 2021).
While high interest rates, credit constraints, and a surplus of properties have kept the market flat, fewer falling values and improving sales suggest potential future growth.
Notable price increases were observed in cities like Auckland (1.4%), Hamilton (2.3%), and Dunedin (2.3%), while Whangarei, Hastings, and Queenstown saw declines. QV spokesperson James Wilson noted that increasing competition among banks may be encouraging buyers, with a slight uptick in investor activity, although they remain cautious.
Wilson described the current market as a "pre-wave" of interest, particularly in desirable urban areas. He anticipates more activity as the year progresses, especially in North Island cities like Tauranga and Whangarei, and emphasized the importance of unemployment rates in influencing the property market. As the peak summer buying season arrives, he expects more buyers and sellers to enter the market, though the absorption of excess stock will be key to future price increases.
Luxury property sales drop by more than 50 percent (Source)
There’s been a big fall in luxury property sales nationally, down more than 50% in four years.
Real Estate Institute statistics reveal only 152 properties valued at $5 million or more were sold last year, that’s down 55% on 2021.
In Auckland, luxury sales fell 14% in 2024 while Queenstown Lakes District and the Bay of Plenty the drop was 91% and 20% respectively.
Caleb Paterson from Paterson Luxury Real Estate said the figures show a shift in regional demand, with Queenstown and Bay of Plenty picking up a share of the top end of the residential market, potentially at the expense of Auckland.
Although the $5 million-plus market makes up only about 1% of total sales, it may signal a wealth transfer from Auckland, which could impact local businesses if it continues.
Despite the overall decline, Paterson pointed to early signs of a resurgence in ultra-premium property sales in Auckland, with increased engagement and viewings for current listings.
More first home buyers getting into their own homes but they remain cautious on price (Source)
First home buyers are becoming more active in the housing market, but they're being selective. Interest.co.nz’s Home Loan Affordability Report suggests that although affordability has improved due to lower mortgage rates, higher after-tax incomes and stable prices at the lower end, they remain cautious about prices.
Reserve Bank figures that show 28,781 first home buyers took out mortgages last year, up 9% on 2023. However, their share of all new mortgages issued fell from 37% in 2023 to 35% in 2024, suggesting they are not rushing into decisions.
Current market conditions, with a high supply of homes, allows buyers to take their time. Average prices for first home buyers have remained stable, at around $672,081 in December 2024. While first home buyers are more active, they are not returning to the overly enthusiastic behaviour seen in 2020 and 2021.
Surging house prices a thing of the past (Source)
This BusinessDesk article gives an assessment of the housing market, focusing on the following points. The overview was that while 2025 may see a slight recovery, significant price surges are not expected. The housing market remains subdued with low rental growth, particularly in Auckland and Wellington.
OCR impact: The RBNZ is expected to cut the OCR by 50 basis points next week, expecting to provide financial relief.
2024 market trends: House prices remained largely flat in 2024, with small declines of 0.6% to 3.9% year-on-year. There’s been a slow recovery, with a slight increase in property sales volumes in recent months. But listings are also up, and sales remain 10% below normal levels.
Regional differences: The Auckland property market has shown slight improvement, particularly on the North Shore, yet Wallington continues to struggle, with values below post-Covid peaks. Christchurch has seen positive growth with values up 41% from pre-Covid levels.
More active first-home buyers: They represented 26% of buyers in late 2024. Increased KiwiSaver first-home withdrawals support this trend. Investors have become less active, likely due to higher costs related to interest rates and running rental businesses.
Our view: It may be a bit of a premature statement to say that surging house prices are a thing of the past. If you look at the property cycle, there are always highs and lows. It may not happen exactly as it has in previous cycles, but it’s a bit too far to say it won’t happen at all.
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Have a fabulous weekend everyone.
From the team at Erskine Owen.
