NZ residential rental market news, July 12

Construction costs drop, property values drop, but will the OCR drop too?

Too long; didn't read? Here're this week's TLDRs...

NZ Construction Costs Drop After Decade

Residential construction costs fell by 1.1% in the three months to June, the first decline in over a decade. 
The annual growth rate dropped to a record low of 0.6% in Q2 2024. 
Key factors include resolution of COVID-19 supply chain issues and a decrease in building consents. 
Decline in costs seen across materials like structural steel and kitchen joinery. 
RBNZ’s new DTI rules exempt construction loans from banking restrictions to encourage new builds. 
Existing property listings' availability reduces demand for new builds.   
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Housing Market Slump Continues

House hunters are going into hibernation as property values continue to fall. 
Average housing values declined for the second consecutive month in June. 
The national average dwelling value was $916,285 at the end of June, down $10,487 since April. 
Auckland region saw the largest drop, with average values decreasing by $31,624. 
The rate of decline in property values is accelerating. 
Economic conditions and high-interest rates are making it difficult for potential buyers. 
Downward price pressure affects all market segments.     
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House Hunters Hibernate, Property Values Fall

House hunters are hibernating during winter, causing a decline in property values. 
Auckland house values have dropped for five consecutive months. 
Average house values in Auckland fell 2.6% in the last quarter. 
The national average house value dropped 0.9% in the latest quarter. 
Economic conditions and high interest rates are deterring buyers. 
Mortgage arrears have slightly improved but remain higher than last year. 
Tough conditions make it difficult for potential buyers to save deposits or get finance.    
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Decline in Accidental Landlords as Market Slows

The number of "accidental landlords" is falling as the property market slows. 
"Accidental landlords" are homeowners who rent out properties they initially intended to sell. 
CoreLogic data shows a significant drop from 5.3% of listings in 2021 to about 2% recently. 
Economic conditions and fewer properties being taken off the market have contributed to this decline. 
Many homeowners are choosing to sell rather than rent out their properties. 
Difficulty in obtaining bridging finance may also be a factor.   
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Largest Build-to-Rent Project Welcomes Tenants

Resido Apartments, New Zealand's largest build-to-rent project, has welcomed its first tenants. 
Located next to Sylvia Park mall, it offers 295 apartments. 
Occupancy has reached 18% within three weeks. 
Prices start at $630 per week for studios and go up to $1223 per week for three-bedroom units. 
Amenities include a gym, media room, secure parking, and pet-friendly facilities. 
Renters United criticises the high prices, saying they exclude low-wage earners. 
Build-to-rent projects are growing but need more affordable options.   
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RBNZ Hints at Potential OCR Cuts

RBNZ keeps OCR at 5.5%. 
Inflation remains above target. 
RBNZ hints at potential OCR cuts if inflation drops. 
Next Monetary Policy Statement on 14th August. 
OCR cut could happen as early as November. 
Housing market favours buyers; lower mortgage rates might help. 
Economic weakness could lead to softer monetary policy.       
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RBNZ Keeps OCR Steady; Forecasters Predict November Cut

The RBNZ kept the OCR unchanged at 5.5%, as expected. 
Economic sentiment has worsened since February due to employment concerns and rising insurance premiums and council rates. 
Forecasters are now predicting an OCR cut in November instead of 2025. 
Surveys show economic activity and sentiment remain depressed but stable. 
RBNZ avoided signaling a specific timing for rate cuts but hinted at a shift in bias. 
RBNZ noted that tight monetary policy is impacting domestic demand more than expected. 
Wholesale borrowing costs have slightly decreased in New Zealand. 
Minor rate tweaks by banks are expected unless June quarter inflation data surprises.     
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Westpac Lowers Mortgage and Term Deposit Rates

Westpac has reduced its short-term mortgage rates by 10 to 25 basis points. 
The one-year fixed special rate dropped 25bps to 6.89%. 
The six-month and 18-month rates also decreased, now at 7.05% and 6.79% respectively. 
RBNZ held the OCR at 5.5%, with expectations for an interest rate cut growing. 
Westpac is also lowering term deposit rates by 5 to 10 basis points. 
The bank is contacting customers who might face financial difficulties.    
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Property Investment Expectations Shifting

The golden age of property investment may be over as expectations shift. 
Rental yields have significantly dropped over the years. 
Most investors now rely on capital gains rather than rental income. 
The average rental yield is around 4.2%, down from the historical 10%. 
Interest rates and borrowing costs make it harder to profit from rental properties. 
Investors may need to focus on long-term growth and property improvements. 
Future house price growth may slow due to DTI ratios and other economic factors.    
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First Home Buyer Prices Drop Over $60,000

The average estimated price for first home buyers has dropped by over $60,000 in the past two years. 
In May 2024, the average price paid was $656,019, down from $717,724 in April 2022. 
The average mortgage size has also decreased by $44,151, from $592,299 to $548,148. 
The number of first home buyers has increased, with 2700 mortgages approved in May 2024, up from 1766 in April 2022. 
More first home buyers are purchasing with less than a 20% deposit.   
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Mortgage Advisers Report Low Activity, Processing Delays

Mortgage advisers report a slight increase in investor activity but overall low levels. 
Application processing times with banks have increased, affecting perceptions of lending willingness. 
A net 7% of advisers report fewer first home buyers seeking advice. 
A net 9% of advisers report more investors seeking advice. 
Most borrowers are opting for short-term fixed interest rates, expecting policy easing. 
A net 29% of advisers report increased refinancing enquiries due to higher interest rates and financial strain.   
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Government Pushes for Remote Building Inspections

The government plans to make remote virtual inspections the default for building consents. 
Mackenzie District Council has successfully implemented remote inspections for a year. 
Remote inspections are more time-efficient and cost-effective, allowing more daily inspections. 
Local Government New Zealand supports the idea but has concerns about liability for councils. 
Inspections are conducted via video conferencing, with inspectors viewing the site remotely. 
On-site inspections may still be necessary in areas with poor cellular coverage.   
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Increase in NZ Citizens Leaving Long Term

There has been a sharp increase in the number of New Zealand citizens leaving the country long term. 
Net migration recorded a loss of over 2000 people in May. 
This is the first net migration loss since June 2022. 
In May, there were 17,340 arrivals and 19,383 departures. 
While long-term arrivals have remained stable, departures have risen sharply. 
This trend has significant implications for the economy and infrastructure. 
Migration figures are estimates and are subject to revision.   
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