The Reserve Bank of New Zealand has slashed the official cash rate by 2.5% since July 2024.
As illustrated below by Justin Fabo from Antipodean Macro, the decline in New Zealand’s official cash rate has sent mortgage rates sharply lower:
Historically, falling interest rates have been associated with rising home prices, as increased mortgage serviceability and borrowing capacity have stimulated buyer demand.
This time around has been different, however, with New Zealand home prices continuing to fall.
Quotable Value (QV) is the latest home price index to report falling values, with values down another 0.8% over the August quarter.
QV’s index shows that prices nationally are tracking 13.4% below the market peak of January 2022. The decline is most pronounced in Wellington, where values are now close to 30% below their peak, and in Auckland, which is down around 20%.
Andrea Rush from QV said that as spring approaches, the housing market remains soft, with values continuing to decline in most parts of the country.
Other home price indices have replicated QV’s results.
The REINZ’s House Price Index shows that national home values have declined by more than 17% over the last 45 months to be only 3.4% higher than they were five years earlier.
Adjusted for inflation, New Zealand home prices have fallen back to late 2019 levels, according to the REINZ.
New Zealand’s dwelling values index recorded the fifth consecutive monthly decline in August, with values down 17.2% compared to the January 2022 peak.
Rising unemployment, falling real wages, immigration at 2.5 year lows, and swelling for sale listings are behind the decline in values, despite falling mortgage rates.
The big winners here are aspiring first home buyers, who are enjoying the most affordable prices in a decade relative to income:
Mortgage repayment affordability is also tracking at its most favourable level in more than a decade:
Major bank ASB forecasts a further 0.50% of interest rate cuts this year—i.e., 0.25% of cuts in October and November—and a 2.5% cash rate as the Reserve Bank “frontloads policy stimulus”.
The prospect of lower interest rates and further declines or stagnation in prices suggests that affordability will improve even further.
It is certainly a “great” price crash for Kiwis seeking to enter the market.
