Slow market, high interest rates, persistent inflation: What’s happening with the New Zealand property market this week?

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The clear test when selling a second home will now return to square one: from 10 years to two.
Photo: Unsplash / Blake Wheeler

Analysis – The residential property market remains weak, interest rates are likely to remain high into next year, but there is some relief for investors. This is what shook the real estate sector this week.

This year there has been pent-up demand from homeowners who need to move.

Owner-occupiers accounted for 27 per cent of purchases last month, Corelogic’s chief property economist said.

It expected its market share to reach 30 percent, but it was unlikely to displace other groups of buyers in the sluggish residential real estate market.

Data from Corelogic showed that new listings in April were 9 percent higher than the same month last year.

Meanwhile, the proportion of first-home buyers active in the market fell to 25 per cent in April, and owners of multiple mortgaged properties continue to sit at around 20-21 per cent of activity, a low level compared to previous standards.

“It wouldn’t be a surprise to see quotes continue to flow in the coming months, especially if the shorter bright line test on July 1 prompts some investors to sell,” he said.

But forecasters predict that house prices will not peak as they did in 2021 until after 2029.

BNZ chief economist Mike Jones adjusted his prediction for house price growth in 2024 from 5 per cent to 2 per cent.

Bright line test goes back two years

The government announced it would reduce the limit for tax breaks when selling a second home, from 10 years to two.

The bright line test was introduced by the previous National Government, expanded twice by the Labor Government, and will now return to square one.

Changes to the bright line test could affect about 60,000 properties, each saving between $55,000 and $65,000 in taxes, OneRoof reported.

Green Party co-leader Chlöe Swarbrick said changes to tax deductibility and the bright line test “will only drive up the cost of housing in this country, putting it even further out of reach for first-home buyers”.

But Housing Minister Chris Bishop told Morning Report on Thursday the government had a comprehensive housing plan. “I want to see rents drop. I want to see housing prices drop,” he said.

Subsidies for first homes are eliminated

It comes as the government abruptly scrapped the first home grant scheme, with applications rejected from 1pm on Wednesday.

However, Bishop said he was willing to look at individual cases where first home grant applicants had lost pre-approved money due to construction delays.

The scheme provided eligible first-home buyers between $5,000 and $10,000 as a deposit.

Pointing to further cuts to grants, Bishop said Kāinga Ora’s First Home Partner shared ownership scheme had run out of funds and “I’m not giving you any commitment that we’ll put any more money into it”.

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Will the OCR go up?

The Reserve Bank predicts interest rates will stay high for longer.

The central bank kept the official benchmark rate unchanged at 5.5 percent for the seventh consecutive meeting, as expected. It predicts an OCR peak of 5.7 percent by the end of 2024.

RBNZ Governor Adrian Orr said inflation was persistent and he expected it to remain above 2 per cent until mid-2026, and for the official cash rate to slowly decline to 5 per cent by the end of 2025.

He told RNZ business editor Gyles Beckford that inflation would take longer to fall, meaning “we have to keep monetary policy tight for a little bit longer”.

But the RBNZ did not need to hit 2 per cent to consider rate cuts.

“The faster prices are fixed in a low inflation environment and the more realistic wage expectations become with low inflation the less painful disinflation is and the more employment remains in good standing,” Orr said.

The RBNZ said its battle against inflation was taking longer than expected, with increases in rents, local body rates and insurance.

However, he acknowledged the slowdown in the economy, higher unemployment, slowing wage growth and reduced consumer spending, but said there was more work to be done to bring inflation back to the target band of 1 to 3 percent. hundred.

Mortgage rates

And that means home loan borrowers will probably have to wait a little longer for interest rate relief, commentators say.

ASB senior economist Chris Tennent-Brown said: “The one-year mortgage rate and floating rate will remain in place until we are really confident that Reserve Bank rate cuts are just around the corner. “We’ve been thinking for a while that that’s not a story for this year, it’s a story for next year.”

He said that while longer solutions were still cheaper, adopting shorter solutions still made sense.

Corelogic chief economist Kelvin Davidson said it’s worth noting that OCR isn’t the only influence on home loan rates.

“Factors such as banking competition and offshore funding rates also play an important role. But in an environment where OCR cuts now appear more likely for 2025 than 2024, something similar seems a sensible assumption for rates as well. mortgages”.

Rents go down

Median rents are stabilizing across the country with the national average remaining at $650, Trade Me Property’s latest report shows.

Auckland, Northland, Hawke’s Bay and Manwatū-Whanganui saw rents fall.

And there were slight declines in other areas, including Nelson and Tasman, which fell almost 3.5 per cent to $570.

But the Bay of Plenty has become the most expensive region in the country for renters, with average rents of $690 a week. It is one of the few regions to see an increase in average rental prices, including Waikato, Taranaki, Wellington and Otago.

Social housing and financing

Social housing faces major shake-up as coalition axes Kāinga Ora board.

A review by former Prime Minister Sir Bill English concluded that the agency is poorly performing and financially unsustainable.

A new Kāinga Ora board will be established in July, led by former Spark chief executive Simon Moutter.

His first task will be to prepare a recovery plan for the housing agency, focused on making Kāinga Ora financially sustainable.

Bishop ruled out a mass sale of state houses, but left open the possibility of transferring houses to social providers.

Habitat for Humanity chief executive Alan Thorp said community housing providers would need cheaper access to capital, which could be achieved through a government guarantee.

Ending the first-home subsidy program is expected to recover about $245 million over four years, which will go toward social housing.

The government also announced $140 million, over the next two years, in new funding for 1,500 new social homes, which will be provided through community housing providers rather than Kāinga Ora.

Community Housing Aotearoa deputy chief executive Chris Glaudel said there were around 500 homes on hold due to a lack of funding.

A combination of the government providing up-front capital – which reduces borrowing size and interest costs – along with operating spending spread through the payment of market rents, would give the best results, he said.