NZ residential rental market news, July 19

Secret mortgage rates, Investors earn $500 Billion, and Inflation eases while costs rise.

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

BNZ and Kiwibank Reduce Mortgage Rates

BNZ has reduced its fixed mortgage rates following other major banks. 
The six-month rate is now 7.24%, and the one-year rate is 7.14%. 
Kiwibank also reduced its special six-month fixed rate to 7.25% and its one-year rate to 6.99%. 
ASB reduced several fixed home loan rates by up to 10 basis points. 
The reductions reflect lower wholesale interest rates and the RBNZ's decision to hold the OCR at 5.5%. 
The industry expects inflation to fall within the RBNZ's target band, potentially leading to OCR cuts by year-end.    
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Mortgage Rates Expected to Drop by 2% Next Year

Mortgage rates could fall by up to 2% over the next year. 
Fixed rates may drop from 7% to closer to 5%. 
The extent of the rate cuts depends on the RBNZ's decisions on the OCR. 
BNZ has recently trimmed its fixed home loan rates, following ANZ. 
The OCR influences the rates banks pay to borrow from the central bank and affects mortgage and deposit rates. 
Kiwibank predicts the RBNZ will start cutting the OCR in November, continuing until it reaches 2.5% to 3%. 
Westpac forecasts the OCR to be cut by 25 basis points at each meeting until May 2025, reaching 4.5%. 
Mortgage rates might pre-empt OCR cuts, already showing some adjustment. 
ASB's chief economist expects OCR cuts to start from October, with long-term rates already reflecting these expectations. 
Global high interest rates are responding to strong inflation post-Covid-19 stimulus. 
The RBNZ is seen as gaining control over inflation, allowing for future rate cuts.      
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Borrowers Opt for Short-Term Fixes Amid Expected Rate Cuts

The RBNZ hints at interest rate cuts if inflation continues to fall. 
Borrowers increasingly fix mortgages for terms of one year or less. 
Economists agree the OCR cut is likely sooner than previously predicted. 
The RBNZ held the OCR at 5.5% but indicated possible rate reductions. 
Kelvin Davidson of CoreLogic sees potential for falling mortgage rates. 
Westpac quickly reduced rates on six-, 12-, and 18-month home loans. 
Most customers prefer six- or 12-month terms, anticipating lower rates. 
Survey: 86% of brokers report borrowers fixing for a year or less. 
Borrowers also show increased interest in refinancing due to high rates. 
Infometrics forecaster Gareth Kiernan sees a possible late-year rate cut. 
BNZ’s chief economist expects an OCR cut in November or possibly earlier.     
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Seek Secret Discounts for Better Mortgage Rates

Borrowers are advised to seek "under the table" interest rate discounts for better deals. 
Economists expect the RBNZ to cut the OCR sooner than previously predicted. 
Recent cuts by Westpac and ANZ have lowered short-term home loan rates. 
Mortgage advisers report obtaining lower rates than advertised for clients. 
Banks are not aggressively competing for new business currently. 
Cashback offers for new lending are about 0.9% of the loan's value. 
A significant "mortgage war" among banks is unlikely until the housing market improves.    
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Misconception About Banks' Lending Willingness Clarified

Banks are willing to lend more than commonly perceived. 
Kris Pedersen, a mortgage adviser, says over-regulation by the previous government and RBNZ has created a misconception. 
BNZ has introduced a 95% home loan product, and TSB has relaxed its first home loan product. 
The RBNZ's regulations, including increased capital requirements, have deterred competition and made borrowing more costly. 
Pedersen criticises these regulations for removing money from the economy and impacting businesses negatively.    
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Property Market Cools Amid Economic Challenges

Property sales decreased 25.6% year-on-year, 32.6% from May. 
Northland sales increased by 11.9% year-on-year. 
Median prices mixed: Taranaki up 10.7%, Gisborne up 7.0%. 
National median price down 1.3% year-on-year to $770,000. 
Listings increased 25.5% year-on-year. 
Auctions accounted for 11.2% of sales in June 2024. 
Median Days to Sell decreased by one day to 47. 
HPI down 0.7% from May 2024, up 1.3% year-on-year.        
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National Median Rent Stagnates at $600 per Week

National median weekly rent for newly tenanted properties increased by $30 year-on-year, reaching $600 in May. 
Rent increases occurred mainly in the second half of the previous year. 
Rent has remained stable at $600 per week since December, except for a brief rise to $608 in January. 
Number of newly tenanted properties in May increased slightly by 0.5% year-on-year, totalling 11,748 bonds lodged. 
The rental market appears to be in relative equilibrium with balanced supply and demand.      
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One in Five Kiwis Spend Half Income on Housing

Nearly 20% of New Zealanders spend over 50% of their income on housing. 
This rate is higher compared to 11% in other surveyed countries. 
The report, conducted by GHD, surveyed over 13,000 people across 10 countries. 
Kiwis expect government intervention to address housing market issues. 
The report highlights the need for strategic land use and infrastructure decisions. 
Improved land zoning and pricing approaches could support affordable housing.     
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Inflation Eases, But Housing Costs Continue to Rise

Annual inflation fell to 3.3% in the June quarter, the lowest in three years. 
Food prices stabilised, easing some budgetary pressure. 
Insurance, council rates, and rents continue to rise rapidly. 
Rent prices increased by 4.8% over the past year. 
Council rates saw a 9.6% increase. 
Insurance costs rose by 14%. 
New house construction costs increased by 3%. 
Interest rates might start decreasing early next year if inflation remains controlled. 
Mortgage rates could potentially drop to around 6% by the end of next year.     
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Property Investors Earn $500 Billion Over 30 Years

Property investors have earned $500 billion over the past 30 years. 
This profit comes from rising property values and rental income. 
Auckland led the gains, with property values increasing by 7% annually. 
Future growth may slow due to regulatory changes and market conditions. 
Investment returns from properties could be lower in the next 30 years compared to the past.    
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House Price Growth Expected to Slow Down

Average house prices in New Zealand have risen by 6.5% per year since 1992. 
Auckland saw a 7% annual increase; the rest of the country, 6.2%. 
Future average gains are expected to be lower for several reasons: 
Interest rates fell from 9.9% in 1992 to 2.2% in 2021 but won't drop similarly in the next 30 years. 
Changes in land use rules allow more houses to be built, potentially increasing supply. 
New land supply rules may reduce land costs, as seen in Christchurch post-2011 earthquake. 
Increased regulations and costs for landlords reduce property demand from investors. 
The shift of properties to short-stay rentals like Airbnb is unlikely to repeat. 
Debt-to-income rules now limit rapid debt-funded property portfolio growth. 
Baby Boomer investors will sell properties to fund retirement, increasing supply. 
Lower interest rates that fuelled recent price rises are not expected to fall similarly again. 
First-home buyers may benefit from slower price increases. 
Investors face high costs and developers have excess stock due to financing pressures. 
Opportunities to buy and renovate older properties may grow as older investors sell.   
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