The Reserve Bank of New Zealand has slashed the official cash rate (OCR) by 2.25%, with further rate cuts expected.
As illustrated below by Justin Fabo from Antipodean Macro, the reduction in the OCR has driven down the cost of new mortgages, which should have lifted housing demand and stimulated home prices.
However, home values in New Zealand continue to fall. The Real Estate Institute of New Zealand (REINZ) reported another 0.5% decline in home values in July, the largest monthly fall since April 2024.
As Justin Fabo shows below, home values have fallen heavily from the peak across all major markets:
Nationally, prices are down nearly 17% over 45 months and are only 3.4% higher than five years ago.
The decline in values comes amid a surge in listings, with the stock of available properties for sale remaining at a decade high.
Sales turnover also declined by 2.8% in July, representing the third consecutive monthly fall.
“Overall, these results point to a stagnant housing market, despite a cumulative 225 basis point reduction in the OCR and significant declines in mortgage interest rates to date”, major bank ASB noted.
“This outcome contrasts with what many economists initially expected. The momentum evident at the start of the year has gradually dissipated, and house prices have continued to decline over the past three months”.
ASB noted that home prices are being pulled down by the recessionary economy and rising unemployment, while “easing net immigration inflows have further exacerbated the imbalance between housing demand and supply”.
As Fabo shows below, real home prices in New Zealand are back to pre-pandemic levels:
The combination of falling prices and mortgage rates is fantastic news for affordability, with New Zealand’s median house-price-to-income ratio falling to decade lows:
Mortgage repayment affordability has also hit a decade low:
Unlike Australia, housing affordability in New Zealand is improving rapidly, which is wonderful news for young Kiwis.
