NZ residential rental market news, July 26

Putting numbers to the townhouse boom, ASB is expecting an OCR cut, and Mortgage rates drop again.

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

Property Market Experiences Winter Chill Amid Economic Challenges

Total property sales decreased by 25.6% year-on-year, from 5,854 to 4,356.
Sales decreased by 32.6% compared to May 2024, from 6,461 to 4,356.
Northland saw an 11.9% increase in sales year-on-year.
Significant sales decreases were seen in West Coast (-51.2%), Tasman (-41.7%), Gisborne (-39.4%), and Auckland (-35.1%).
Median house prices saw mixed results, with six out of sixteen regions increasing year-on-year.
Taranaki’s median price increased by 10.7% year-on-year, and Gisborne by 7.0%.
Auckland’s median price rose by 2.7% month-on-month to $1,048,000.
National median price decreased by 1.3% year-on-year to $770,000, with no change from May 2024.
Listings increased by 25.5% year-on-year from 6,218 to 7,805.
Inventory levels rose by 28.6% year-on-year from 24,676 to 31,745.
Median days to sell decreased by one day year-on-year, from 48 to 47 days.
The House Price Index (HPI) for New Zealand stood at 3,573 in June 2024, up by 1.3% year-on-year but down 0.7% from May 2024.   
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Housing Market Slows, First Home Buyers Steady

Sales activity dropped significantly in June, with 4,744 deals, down 22.1% from last year.
High mortgage rates continue to restrain buyer demand.
Listings remain high, leading to weaker price pressures.
CoreLogic House Price Index dropped by 0.5% in June, a total fall of 0.8% since March.
First home buyers maintain a 26% market share, supported by lower house prices and KiwiSaver.
The economy is sluggish, with potential for an OCR cut by the RBNZ later in the year.
Investors face negative cashflow due to high mortgage rates and cooling demand.      
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First Home Buyer Affordability Improves Slightly

Home loan affordability has improved for first home buyers.
Mortgage payments for lower quartile homes have decreased from 43.8% to 41.9% of after-tax pay from March to June.
Affordability may dip below 40% by the fourth quarter if trends continue.
This would be the first time since October 2021 that housing is considered affordable at the national level.
Factors include falling house prices, reduced mortgage rates, and wage increases.
Auckland and regions like Bay of Plenty and Wellington still face severe unaffordability for first home buyers.    
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Falling Interest Rates, Investor Challenges Impact Housing Market

Interest rates have been falling since January, now settling below 7%.
Rental increase expectations have decreased from 5.8% to 4.5%.
More landlords find it difficult to secure good tenants, a net -12% now.
The proportion of investors planning to sell has slightly decreased to 11%.
Long-term holding intent has dropped from 65% to 52% over two years.
Mortgage debt growth has slowed, with banks more willing to lend.
Construction recovery is expected post-2025 as economic conditions improve.    
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High Pricing in Falling Market Risks Lower Offers 

Setting a high price in a falling market can result in lower final offers.
Properties listed too high may stay unsold for extended periods.
Recent data shows property prices falling by 0.85% per month since February.
Sellers often need to drop prices significantly to attract buyers.
Median discount accepted by vendors is 3.8%, higher in some Auckland areas.
Realistic pricing is crucial to avoid long periods on the market and potential losses.    
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Major Banks Lower Mortgage Rates Amid Falling Inflation

Westpac cut mortgage rates for the second time in three weeks.
New five-year fixed rate is 5.99% (special) and 6.59% (standard).
One-year fixed rate drops to 6.85% (special) and 7.45% (standard).
Other banks, including ASB, ANZ, BNZ, and Kiwibank, have also lowered rates.
Inflation decreased to 3.3% in the year to June 30.
RBNZ kept the OCR at 5.5%, noting stronger-than-expected economic impact.        
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ASB Predicts Possible OCR Cut Next Month

ASB predicts an OCR cut could happen next month if labour data and inflation measures are weak.
Cuts of up to 75 basis points expected by the end of the year.
Potential 25 basis point cuts in October and November as core inflation cools.
Downward revisions in data and falling core inflation support this outlook.
Domestic inflation is cooling slower than imported inflation.
Expected data before the October RBNZ meeting includes price indices, GDP, and consumer spending impacts of tax cuts.
Economists see risks in maintaining tight monetary conditions for too long.      
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Wellington Rates to Increase by Up to 30%

Wellington ratepayers face significant increases in their rates.
Regional council rates increases range from 15% to 30%.
Local council rates comprise four-fifths of a bill, including general rates, targeted rates, universal charges, and water supply levies.
Wellington City Council has an 18.5% increase, Hutt City rates rise by 16.9%, and Porirua by 17.5%.
Greater Wellington Regional Council voted for a 19.8% increase.
Variations in property valuation timings across Wellington’s districts impact rate calculations.     
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Mortgagee Sales Offer Steeper Discounts, Higher Risks

Mortgagee sales are selling at greater discounts than usual, with a 19% median discount in 2023.
Mortgagee sales are fewer but there are concerns about increasing mortgage stress.
TradeMe lists about 50 properties for mortgagee sale.
Risks include inability to view the property and potential occupancy issues at purchase.
Non-mortgagee sales have much smaller discounts, around 2% or less.
Mortgagee sales attract buyers seeking bargains but involve significant risks and uncertainties.
Current market conditions make it tougher for mortgagee sales, requiring larger discounts.     
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Townhouse Construction Booms, Meeting Affordable Housing Demand

Nearly 40,000 townhouses have been built since 2016, with over half in Auckland.
Townhouses account for 45% of new dwelling consents, up from 6% in 2012.
Changing tastes, lower prices, and better value for developers drive this trend.
Townhouses are popular for their proximity to infrastructure and public transport.
Despite the housing market slowdown, townhouses remain a significant share of new constructions.   
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Shared Equity Schemes May Boost Home Ownership

Shared equity schemes, including leasehold, rent-to-own, and third-party deposit contributions, could help increase home ownership.
Deloitte's report for Westpac indicates these schemes have accelerated since 2020.
Constraints include funding availability, credit conditions, land and construction costs, and lack of a national affordable housing strategy.
Limited awareness and government policy uncertainty also hinder growth.
Overseas models from Australia and the UK could offer valuable lessons.
Deloitte identifies 53,000 eligible households, with potential to rise by 100,000 if awareness improves.   
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Migrants’ Share of Home Purchases Declines

Residence visa holders accounted for 12% of home buyers in the June quarter.
This is the third consecutive quarterly decline from the peak of 14.3% in Q3 last year.
Residence visa holders have consistently bought more properties than they sell, with only 4.3% of sellers being visa holders.
In the past year, 16,704 homes were sold to residence visa holders, making up 13.3% of total sales.
Migrants are more likely to be buyers rather than sellers of residential properties.   
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Insulation Not to Blame for Overheating, Experts Say

Building experts claim insulation is not causing home overheating.
Minister Chris Penk considers rolling back upgraded insulation standards due to cost complaints.
Experts argue overheating issues stem from poor design, not insulation.
Modelling energy performance can prevent overheating.
Insulation helps keep homes cool in summer and warm in winter.
The building industry supports maintaining current insulation standards.   
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