The Reserve Bank of New Zealand has cut the official cash rate (OCR) by 2.50% from its July 2024 peak of 5.50%:
The decline in the OCR has delivered a sharp reduction in mortgage rates on new loans:
Typically, such a significant reduction in mortgage rates would be associated with a sharp appreciation of home values, given improved borrowing capacity and loan servicability.
However, the polar opposite situation has unfolded in New Zealand, with home values failing to respond.
Cotality released its September dwelling value results, with values rising only 0.1% over the month following five consecutive monthly falls.
Over the September quarter, dwelling values declined by 0.7%:
As a result, Cotality reports that New Zealand dwelling values have fallen by 17.3% from the peak:
Commenting on the result, Cotality’s chief property economist Kelvin Davidson noted that the 0.1% rise in values in September was “probably within the margin of error” but was a respite from “a fairly chilly winter for property values”.
“That said, September’s rise in values was clearly marginal, and it’s far too early to conclude that this marks the start of a new, sustained lift”, Davidson added.
“After all, the stock of available listings—while falling—remains relatively high, and caution continues to pervade the market”.
“We’re not on solid economic ground just yet … It’s a wee bit of a shift but certainly not a clear upturn or anything like that”, he said.
Indeed, as shown below by Justin Fabo from Antipodean Macro, New Zealand’s housing market remains weighed down by a high level of for-sale listings, which are tracking around decade highs.
In fact, property website Realestate.co.nz received the highest number of new listings for the month of September since 2020, when the market was heading into boom mode.
That increased the total residential stock available for sale on the website to 30,721 at the end of September, up 2.4% from August and an 11-year high for the month of September.
The overall number of properties for sale on Realestate.co.nz was also up 74.8% compared to September 2020.
Thus, the mountain of homes listed for sale is providing buyers with lots of choice and tilting price negotiations in their favour.
In further good news for New Zealand home buyers, the combination of lower mortgage rates and home values has delivered the best affordability in a decade:
With the Reserve Bank of New Zealand forecast to deliver further interest rate cuts, mortgage affordability is expected to improve further.
