The challenges of the housing market were cited as one reason why the Reserve Bank of New Zealand (RBNZ) has again decided to cut the Official Cash Rate (OCR), reducing it by 0.25% to 3%.
Cheaper mortgages are now likely to further encourage the signs of green shoots that have emerged in several regions in the past three months.
It is our seventh rate cut since August, 2024, when the rate stood at 5.5%.
The RBNZ said that while inflation was pushing the higher edge of its 1-3% target range, it was concerned about the housing market, as well as falling employment and the uncertainty of global economic policy.
These three issues had caused New Zealand’s economy to stall between April and June, the RBNZ said.
“There are upside and downside risks to the economic outlook. Cautious behaviour by households and businesses could further dampen economic growth,” said the RBNZ. “Alternatively, the economic recovery could accelerate as the full effects of interest rate reductions flow through the economy.”
Housing data suggests the RBNZ is “on the money” when it comes to its observations about the current property market.
The latest OneRoof-Valocity House Price Report for August says value growth has been “minimal in the last 12 months” because prices have been suppressed by a record-high number of properties for sale.
Even though the RBNZ is trying to provide buyers with more credit by lowering the interest rate, first-time buyers and upsizers have been reluctant to transact because of economic uncertainties.
Based on historic norms, conventional analysis suggests that it takes a full 1% cut to ignite the real estate market.
However, we appear to be in a period best described as an “outlier”. We have seen 2.5% taken off the cost of a mortgage with a muted market response.
But that’s not going to last for long.
The latest OneRoof survey says the national property value fell 0.1% to an average $961,000. Over the last 12 weeks, values have dropped nearly 1%.
However, six regions continue to see values growing, with the best performers being West Coast (+3%), Canterbury (+2.3%) and Southland (+2%).
While the reasons for the lack of buyer response to the program of seven rate cuts are complex – ranging from lingering economic uncertainty to concerns about job security – this environment can be a significant opportunity for upsizers and first-time buyers.
Here are some tips for handling the current market dynamics:
Negotiate aggressively – With more properties on the market and sellers keen to secure a deal, you have room to negotiate. The record-high level of listings means there are other properties to consider as alternatives.
Focus on value – While price is important, look for properties that offer long-term value. This could be a home in a good school zone, a location with strong rental demand or a property that has potential for future renovation and capital growth.
Don’t over-extend – While a lower interest rate makes a mortgage more affordable now, it’s crucial to stress-test your finances for potential rate increases in the future.
Mortgage strategies – Consider your risk tolerance and financial situation. You have four basic options: 1.) Fixing a short-term loan (6-12 months); 2.) Take the so-called “barbell approach” by splitting your mortgage between a short-term and a long-term fixed rate to balance flexibility and certainty; 3.) Divide your mortgage into multiple fixed terms; 4.) Take a conventional, variable-rate loan.
By taking a disciplined and strategic approach, buyers can turn the current uncertainty in the New Zealand property market into a significant advantage and lay the groundwork for a sound long-term investment.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial adviser or accountant for advice specific to your personal circumstances.