Slow market, high interest rates, stubborn inflation: What is happening with the NZ housing market this week?

Analysis – The residential property market remains sluggish, interest rates are likely to stay high until next year, but there’s some relief for investors. Here’s what moved real estate this week.

A pent-up demand from homeowners needing to move has emerged this year.

Owner-occupiers accounted for 27 percent of purchases last month, Corelogic chief property economist said.

He expected their market share would reach 30 percent, but would be unlikely to crowd out other groups of buyers in the sluggish residential property market.

Corelogic data showed new listings in April were 9 percent higher than the same month last year.

Meanwhile, the proportion of first-home buyers active in the market slipped to 25 percent in April, and mortgaged multiple property owners continue to sit at about 20-21 percent of activity – a low level compared to past standards.

“It wouldn’t be a surprise to see listings continue to flow in the coming months, especially if the shorter bright-line test from 1 July prompts some investors to sell,” he said.

But forecasters are predicting house prices will not peak like they did in 2021 until after 2029.

BNZ chief economist Mike Jones adjusted his prediction for an increase in house prices over 2024 – to 2 percent down from 5 percent.

Bright-line test back to two years

The government announced it would reduce the cut-off for tax breaks when selling a second home – from 10 years to two.

The bright-line test was introduced by the previous National government, extended twice by the Labour government, and will now be back to where it started.

The bright-line test changes could impact about 60,000 properties, with each one saving between $55,000 and $65,000 in tax, OneRoof reported.

Green Party co-leader Chlöe Swarbrick said changes to tax deductibility and the bright-line test “will only bid up the cost of housing in this country, putting it further out of reach for first-home buyers”.

But Housing Minister Chris Bishop told Morning Report on Thursday the government had a comprehensive housing plan. “I want to see rents fall. I want to see house prices fall,” he said.

First home grants scrapped

It comes as the government abruptly scrapped the First Home Grants scheme, with applications rejected from 1pm on Wednesday.

However, Bishop said he was willing to look at individual cases where first-home grant applicants had missed out on pre-approved money because of building delays.

The scheme provided eligible first-home buyers between $5000 and $10,000 towards a deposit.

Signalling further cuts to grants, Bishop said Kāinga Ora’s First Home Partner shared ownership scheme had run out of funding, and “I’m not giving you any commitment that we will put more money into it”.

Read more:

Will the OCR go up?

The Reserve Bank is forecasting interest rates to stay higher for longer.

The central bank held the benchmark official cash rate unchanged at 5.5 percent for the seventh consecutive meeting, as expected. It predicts a 5.7 percent OCR peak at the end of 2024.

RBNZ governor Adrian Orr said inflation was sticky and expected it to stay above 2 percent until the middle of 2026, with the official cash rate slowly declining to 5 percent by the end of 2025.

He told RNZ business editor Gyles Beckford it would take longer for inflation to fall, meaning “we have to retain restrictive monetary policy for a bit longer”.

But the RBNZ did not have to get to 2 percent to consider rate cuts.

“The quicker price setters get their heads around a low inflation environment and wage expectations get more realistic with low inflation than the less painful disinflation is and the more employment remains in good stead,” Orr said.

The RBNZ said its battle with inflation was taking longer than expected, with rises in rents, local body rates and insurance.

However, it acknowledged the slowing economy, higher unemployment, slowing wage growth and reduced consumer spending, but said there was more work to do to get inflation back into the 1-3 percent target band.

Mortgage rates

And that means, home loan borrowers are likely to have to wait a bit longer for interest rate relief, commentators say.

ASB senior economist Chris Tennent-Brown said: “The one-year mortgage rate and floating rate are going to hold up until we are really certain that Reserve Bank rate cuts are just around the corner. We’ve been thinking for a while that’s not a story for this year, it’s a story for next year.”

He said while longer fixes remained cheaper, taking short fixes still made sense.

Corelogic chief economist Kelvin Davidson said it was worth noting the OCR was not the only influence on home loan rates.

“Factors such as bank competition and offshore financing rates also play an important role. But in an environment where OCR cuts appear even more likely now to be a story for 2025 than 2024, something similar seems a sensible assumption for mortgage rates too.”

Rents dipping

Median rents are flattening around the country with the national median remaining at $650, the latest Trade Me Property report shows.

Auckland, Northland, Hawke’s Bay and Manwatū-Whanganui saw rents dip.

And there were slight downturns in other areas including Nelson and Tasman which dropped nearly 3.5 percent to $570.

But the Bay of Plenty has come up as the most expensive region in the country for renters with average rents at $690 a week. It is one of a handful of regions to see a rise in average rent prices, including Waikato, Taranaki, Wellington and Otago.

Social housing and funding

Social housing is in for a major shake-up, as the coalition clears out Kāinga Ora’s board.

A review by the former prime minister Sir Bill English has found the agency is underperforming and financially unsustainable.

A new Kāinga Ora board will be in place by July, led by the former Spark chief executive Simon Moutter.

Its first job will be to prepare a turnaround plan for the housing agency, focused on making Kāinga Ora financially sustainable.

Bishop ruled out a mass sell-off of state houses, but has left open the possibility of transferring houses to social providers.

Habitat for Humanity chief executive Alan Thorp said community housing providers would need cheaper access to capital, which could be done through a government guarantee.

Ending the First Home Grants scheme is expected to recoup about $245m over four years which will go towards social housing.

The government also announced $140m, over the next two years, in new funding for 1500 new social housing, to be provided through community housing providers rather than Kāinga Ora.

Community Housing Aotearoa deputy chief executive Chris Glaudel said there were about 500 homes stalled due to a lack of funding.

A combination of the government providing upfront capital – that reduces the amount of borrowing and interest costs – along with a spread-out operating expenditure through the payment of the market rents, would give the best results, he said.

According to the news on Radio New Zealand

Related News

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button