Mortgage calls: When will borrowers see value in long-term rates again? (Source)
This year, homeowners will face important decisions about their mortgages as interest rates fall. According to CoreLogic, 80% of borrowers began the year with either floating rates or fixed terms of less than 12 months. For new loans, only 10% were fixed for more than 12 months, a sharp drop from 51% last year. The share of floating-rate loans has risen from 17% to 28% in the past year, and existing loans on floating rates have increased to 14%, the highest level since 2020.
Borrowers are taking advantage of falling mortgage rates as the Reserve Bank reduces the official cash rate, but it remains uncertain when long-term fixed rates will become attractive again. Some experts predict that long-term rates might not fall much further. Mortgage broker Squirrel's CEO, David Cunningham, expects some rates could dip below 5% in the next few months, making longer-term fixed rates a viable option again.
However, floating rates still carry risks, as they tend to result in higher repayments. Loan Market advisor Michelle Isemonger cautioned that while some borrowers are betting on future rate cuts, there is uncertainty about the future, and repayment costs could rise
Our view: There is certainly a lot of change in the wind this year and great anticipation of improved mortgage rates. With the next OCR announcement to take place next month (February 19), there are many economists predicting a further 0.50% drop, which in turn should result in interest rate drops, but by how much is yet to be ascertained. When considering your mortgage talk to the experts to ensure you set your mortgage up in a way that best suits your financial situation. Our mortgage broker Wendy can be contacted here.
Home ownership rates are falling with rental properties the main driver of growth in housing stock (Source)
The number of owner-occupied dwellings reached a record high at the end of last year, with 1,354,500 of the total 2,027,700 dwellings being owner-occupied. However, the overall home ownership rate is falling, as the percentage of rented properties has steadily increased – according to the latest housing tenure estimates from Statistics NZ. In the fourth quarter of 2024, rented properties accounted for 31.3% of the total, up from 30.7% in the first quarter of 2023, marking seven consecutive quarters of growth in rental properties.
The percentage of owner-occupied dwellings has slightly declined from 67.5% in Q1 2023 to 66.8% in Q4 2024. While recent changes in home ownership rates have been gradual, the long-term trend shows a more significant shift. In Q1 1991, 73.8% of dwellings were owner-occupied, compared to 22.9% that were rented. Over time, despite substantial growth in total housing stock, most of the increase has been in rental properties.
New dwelling consents at a six year low in 12 months to November (Source)
The number of building consents issued for new homes in the year to November dropped to a six-year low, with 33,609 consents issued, marking a 12% decrease from the previous year and a 33.1% decline compared to two years ago. This Statistics NZ-reported decline has been widespread across various regions, with Auckland seeing a 36% drop, Waikato 41%, and Wellington 51.7%.
The decline affected all types of dwellings, with new apartment consents down 58.8%, retirement village units down 41.7%, townhouses and home units down 32.2%, and standalone houses down 27.6%. The total value of consented residential building work also fell by 24.9%, totaling $15.33 billion.
This slowdown in construction isn't limited to residential buildings; non-residential construction also saw a decline in floor area, with new non-residential buildings dropping by 28.8% over the past two years.
Our view: We covered this last year. If you consider the basics of supply and demand, if fewer properties are being built, then over time the ones we have inevitably increase in price due to demand. It may not have an instant impact, but the reduction in building consents should be a sign of what’s ahead.
Residential building activity in Auckland is increasingly sluggish (Source)
Fewer new homes are being consented in Auckland, and those that are, are taking longer, on average, to build.
Statistics NZ data shows 13,863 new dwellings were consented in Auckland in the 12 months to October 2024, compared to 16,669 (October 2023) and 21,960 (October 2022).
That's 8097 fewer homes consented (-37%) over the last two years.
The decline in new home construction is partly due to fewer homes being consented, but the situation is more complex. In Auckland, it typically takes about two years from when a dwelling is consented to when it is completed and receives a Code Compliance Certificate (CCC) indicating completion.
By October last year, only 65% of new dwellings in Auckland were receiving CCCs within two years of consent issuance, a significant drop from over 90% in 2019. With Covid disruptions and supply chain issues no longer a factor, the delay is largely attributed to developers postponing construction due to the challenging housing market. Smaller builders may wait until buyers are secured before starting construction, while larger developments may now be phased. This, combined with a general decline in consents, is contributing to a slower housing market.
$300b mortgage debt a 'tsunami' due to hit this year (Source)
NBR points to a ‘tsunami’ of renegotiated home loans up ahead, as NZ homeowners will reprice almost $300 billion in mortgages this year.
That’s 81 percent, or more than four in every five home loans held.
Mortgage brokerage Squirrel says it’s a scenario unique to New Zealand, where more than 90% of all mortgages are fixed, and the mirror opposite of the Australian market, dominated by floating home loans.
With the Reserve Bank expected to resume its rate-cutting cycle from February, that will put about $4 billion back into homeowners’ pockets this year.
Half of all Aussie capital cities now have a median house price of more than $1 million (Source)
Despite a national slowdown in Australia's housing market, five out of the eight capital cities are set to soon have a median house price exceeding $1 million. The latest Domain House Price Report reveals Brisbane's median house price surpassed $1 million in the final quarter of 2024, reaching $1,016,192. Adelaide’s median, up $25,000 in the quarter, is now just $7,807 short of $1 million and is expected to hit that mark soon.
Four years ago, Sydney was the only Australian capital city with a median house price above $1 million. Now, cities including Melbourne, Canberra, Brisbane, and Adelaide have joined that list, and Perth could follow by the end of 2025, with a projected 8-10% growth this year.
Have a wonderful weekend everyone.
From the team at Erskine Owen.
