NZ residential rental market news, January 17

Bucking a 30-year trend: Income rises set to outpace house price rises, saying goodbye to the foreign buyer ban, and has a balance been struck in the rental market?

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

Mortgage Rate Decisions Crucial Amidst Market Changes

Property values fell by 0.2% nationally in December, marking nine drops in ten months during 2024. 
The national median home value now stands at $803,624, 3.9% lower than a year ago and 17.6% below the post-COVID peak. 
Main centres show mixed results: Hamilton, Tauranga, and Dunedin saw slight increases, while Auckland and Wellington continued to decline. 
December’s decline reflects high mortgage rates and labour market weakness but suggests a slowdown in the rate of decline. 
Lower mortgage rates and emerging market resilience may stabilise property values in 2025. 
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Limited Decline in Mortgage Rates Expected for 2025

Businesses are increasingly planning to raise prices in 2025, with a net 43% indicating such intentions in December, up from 35% in June. 
The NZIER's Quarterly Survey of Business Opinion shows a net 15% of businesses plan to raise selling prices, up from 7% in the previous quarter. 
The Reserve Bank (RBNZ) may exercise caution in cutting the Official Cash Rate (OCR), potentially opting for a 0.25% reduction instead of 0.5%. 
Stronger-than-expected job market data in the United States has led to increased US wholesale interest rates and a stronger US dollar. 
The New Zealand dollar has weakened, falling to just above 55 US cents from 62 cents in October. 
These factors may limit the extent to which fixed mortgage interest rates decrease in 2025.    
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Borrowers Refixing in February to Gain from Rate Drops

Homeowners with one-year fixed-rate mortgages maturing in February 2025 are poised to benefit significantly from falling interest rates. 
These borrowers may see interest rate reductions between 1.6 and 2.1 percentage points, the largest since 2009. 
On a $500,000 loan, this could translate to a weekly payment decrease of up to $150. 
Some borrowers are choosing to maintain their current repayment amounts, enabling faster debt reduction. 
Others are opting for lower repayments to increase disposable household income. 
Falling interest rates are expected to boost household spending confidence as the year progresses. 
Electronic card spending rose 1.5% in core retail sectors between July and November, marking the best period since early 2023. 
Despite a softening labour market, spending activity is anticipated to gain momentum from mid-year, aided by lower interest rates, rising employment, and higher export prices.    
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Key Mortgage Market Developments and Trends

Mortgage advisers originated 63% of Westpac's new mortgage lending in the year ending September 2024, up from 60% the previous year. 
Squirrel Mortgages acquired a majority stake in NZ Mortgages, marking its second significant acquisition in recent years. 
DTI rules are expected to significantly impact borrowers by mid-2025, particularly investors, as serviceability test rates approach 7%. 
Mortgage interest rates are anticipated to decrease, potentially settling between 4.5% and 5% in 2025, benefiting borrowers. 
ASB temporarily halted pre-approvals for new customers due to high demand and longer processing times, prioritising existing customers.  
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Economists Predict Modest House Price Growth in 2025

In December, the national median house value decreased by 0.2%, marking the ninth decline in ten months, bringing it to $803,624. 
This value is 3.9% lower than the same period last year and 17.6% below the post-Covid peak, yet remains 16.2% higher than in March 2020. 
Economists forecast an average house price increase of 7.1% for 2025, influenced by anticipated declines in mortgage interest rates and improved debt serviceability. 
Major banks project varying price hikes: Westpac at 8.2%, ANZ at 6%, ASB at 10.9%, and BNZ at 6.5%. 
The RBNZ predicts house price growth of 7.06% for the year ending December, peaking at 7.4% in March 2026 before a gradual decline. 
Independent economist Tony Alexander cautions against expecting a housing boom solely due to decreasing interest rates, citing factors like China's economic sluggishness, rising local costs, and a slowdown in multi-unit dwelling construction. 
Squirrel Mortgages anticipates interest rates to stabilise between 4.5% and 5% by March or April, advising borrowers to adjust expectations, as rates below 3% are unlikely to return soon.      
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Government Policies May Halt House Prices Outpacing Incomes

Former Reserve Bank Governor Don Brash suggests that house prices may no longer rise faster than incomes, ending a 30-year trend. 
The coalition government plans to implement policies to prevent further house price escalation. 
Proposed changes include requiring local authorities to zone sufficient housing land for the next 30 years. 
Other measures involve removing restrictions on building small "granny flats" and allowing greater intensification around transport nodes. 
Reforms to the Resource Management Act aim to streamline the house-building process. 
Brash believes these policies could lead to a gradual decline in house prices over the next decade. 
He highlights that current house prices, relative to household incomes, are significantly overvalued. 
High house prices contribute to social distress and low household saving rates. 
Brash notes that New Zealand's balance of payments deficit is currently the highest in the developed world.          
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Potential Easing of Foreign Buyer Ban on High-Value Homes 

Speculation is growing that the government may relax the foreign buyer ban on high-value residential properties. 
Real estate agents have observed the Overseas Investment Office approving several high-value deals recently. 
Revisions to the Active Investor Plus Visa programme are anticipated early this year, potentially allowing investments in residential property. 
Some industry experts advocate raising the threshold for foreign purchases to $5 million, citing potential economic benefits. 
The National Party had previously proposed a 15% tax on foreign purchases of properties over $2 million but did not implement it due to coalition agreements.              
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Auckland's Residential Construction Slows Amid Fewer Consents

The number of new dwellings consented in Auckland dropped to 13,863 in the 12 months to October 2024, down from 16,669 in 2023 and 21,960 in 2022. 
Over 90% of new dwellings in Auckland were completed within two years of consents in 2019; this figure dropped to 65% by October 2024. 
Developers are delaying construction starts due to a challenging housing market. 
The slowdown is reducing the supply of new housing in Auckland.             
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Home Ownership Rate Declines to 67% in Q4 2024

The home ownership rate has declined from 74% in Q1 1991 to 67% in Q4 2024. 
As of Q4 2024, there were 2,027,700 dwellings, with 1,354,500 (66.8%) owner-occupied and 635,600 (31.3%) rented. 
Rented properties have increased for seven consecutive quarters, from 30.7% in Q1 2023 to 31.3% in Q4 2024. 
Owner-occupied dwellings have declined over the same period, from 67.5% to 66.8%. 
Since 1991, most growth in housing stock has come from rental properties.              
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Rental Market Remains Stable Ahead of Busy Summer

The national median rent has remained at $600 per week for ten consecutive months. 
This stability suggests a balance between supply and demand in the rental market. 
Auckland's median rent has been steady at $650 per week since July. 
The number of new tenancy bonds received in October was 11,019, similar to the 10,986 received in October last year. 
Upcoming summer months will test the market's stability, as this period typically experiences higher rental activity.             
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Buyer Interest on Trade Me Property

Trade Me Property reported a 30% decrease in buyer interest in December. 
The average asking price for properties listed on Trade Me declined by 1.7% compared to the previous month. 
The number of new property listings on the platform increased by 5% year-on-year. 
Regions such as Auckland and Wellington experienced the most significant drops in buyer inquiries. 
Despite the decrease in buyer interest, some regions saw a slight increase in average asking prices.                
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