The Reserve Bank of New Zealand has slashed the official cash rate by 2.50% from its July 2024 top of 5.50%:
As illustrated below by Justin Fabo from Antipodean Macro, the sharp cut in the cash rate has reduced mortgage rates for new loans back to around pre-pandemic levels:
Such a large decline in mortgage rates would usually result in a significant increase in home values due to greater borrowing capacity and loan servicability.
However, the reverse has occurred this time around in New Zealand, with housing values failing to respond.
Last week, Cotality reported that dwelling values rose by 0.1% in September following five consecutive monthly declines.
However, in the September quarter, housing values fell by 0.7%:
As a result, Cotality estimates that New Zealand home values have decreased by 17.3% from their peak:
Commenting on the results, Cotality’s chief property economist, Kelvin Davidson, noted that “the stock of available listings—while falling—remains relatively high, and caution continues to pervade the market”.
Meanwhile, Auckland’s largest real estate agency, Barfoot & Thompson, reported that the median dwelling price continued its downward trend in September, printing at $930,000 for the month, down $20,000 compared to both July and August and down by $51,500 since March.
September’s median price was also the lowest September result since 2020.
The main driver of the falling prices in spite of rate cuts is surging for-sale listings.
Property website Realestate.co.nz reported last week that the total number of homes listed for sale on the website was 30,721 at the end of September. This was up 2.4% from August and an 11-year high for the month of September.
The mountain of homes listed for sale has provided buyers with lots of choice and tilted price negotiations in their favour.
Meanwhile, Tony Alexander’s latest survey of real estate agents reported that “a solid buyer’s market remains in place with evidence of more vendors entering the market to sell”.
“Prices are generally still seen as falling according to agents, with FOMO remaining at low levels yet many vendors still hoping for 2021 prices”.
Major bank ASB has forecast a further 75 bp of monetary easing, which should eventually spark a price resurgence. However, we aren’t there yet.
