Stabilisation on the Horizon for New Zealand’s Housing Market

The New Zealand housing market, after experiencing a period of decline, is beginning to show signs of stabilisation. However, a sharp rebound isn’t on the cards. Several factors are at play, influencing the dynamics of the market.

Mortgage Rates and Market Conditions

Mortgage rates in New Zealand are falling, which would typically be a positive sign for the housing market. However, the surplus of listings and a weak labour market continue to exert downward pressure. The Reserve Bank forecasts a 7% increase in house prices in 2025. While this is a positive prediction, it is relatively modest given the recent downturn the market has experienced.

Borrower Behaviour and Mortgage Trends

There is a notable shift in borrower behaviour, with a growing preference for shorter-term fixed mortgages. In October, only 10% of new loans were fixed for longer than 12 months. This trend reflects borrowers’ uncertainty about future interest rate movements and a hesitance to commit to longer-term fixed rates.

Construction Activity

Construction activity, indicated by dwelling consents, appears to be stabilising, suggesting that construction volumes may increase in the coming year. Nevertheless, a significant construction boom isn’t expected due to declining net migration.

Net Migration and Population Growth

Net migration in New Zealand is anticipated to remain weak, with fewer arrivals and high departure rates. This trend implies lower population growth and, consequently, limited growth in property demand.

Economic Indicators and Cash Rate Adjustments

Economic indicators such as electronic card spending and manufacturing activity are expected to remain sluggish. This economic backdrop supports the possibility of the Reserve Bank implementing another 0.5% cut in the Official Cash Rate in February, aiming to stimulate economic activity.

Excerpt

While there are signs of stabilisation in the New Zealand housing market, the recovery is expected to be slow and gradual. The interplay of falling mortgage rates, borrower hesitance, construction activity, net migration, and economic indicators suggests a cautious outlook for the near future. As always, potential buyers and investors should stay informed and consider multiple factors when making decisions in the current housing market landscape.