Prospect of more cuts to mortgage rates spurs home-buying interest

Tuesday, 8 October 2024

Wellington has suffered from uncertainty caused by public sector job cuts.

The average New Zealand home dropped in value by 1.6% in the September quarter, according to QV’s latest House Price Index.

Despite the falls, the national average was still $901,920 at the end of September, and economists expect the residential property market to recover next year.

The data, released Tuesday morning, showed Wellington home values fell by twice the national average in the three months to the end of September - falling just over $20,500 lower than in the previous year, but beaten by Tauranga and Auckland, which saw falls of just over $30,000 and $56,500 respectively.

QV is a valuation company, and the values in the QV report are an estimate of changes to the value of housing stock derived from the actual prices at which individual properties sold for during the period covered.

QV’s operations manager James Wilson said the average reduction in home value in Wellington was 3.2% in the September quarter compared with a drop of 1.7% in Auckland, 1.2% in Hamilton, and 0.8% in Christchurch and Dunedin.

Wellington’s home-building sector is facing a slump, with uncertainty around seismic building standards and a sharp post-pandemic fall in house prices contributing to the slowdown. Local authorities are being urged to address the concerns.

But QV data showed in most parts of the country the rate of home price falls was slowing. QV and other players have an interest in more property market activity, and Wilson looked hopefully to an expected drop in the official cash rate (OCR) on Wednesday of either 25 or 50 basis points taking the OCR to either 5% or 4.95%.

“Interest rates have started to come down now, so we’re really starting to see sentiment shift across much of the country,” Wilson said.

“There seems to be a spreading expectation that interest rates can only go one way, and so we’re seeing more people at open homes, in auction rooms, and browsing for property online.”

Westpac was forecasting two 50 basis point cuts to the OCR, one in October and one in November, which would take the OCR to 4.25% at the end of the year. Further cuts next year would see the OCR being cut to 3.75% by mid-2025.

The continued depressed housing market meant those interested in seeing house prices rise might have to wait until after Christmas.

“The housing market recovery is most likely a 2025 as opposed to 2024 story,” the bank’s economics team forecast.

BNZ’s economics team said: “We anticipate the cash rate to be at least 125 basis points lower than where it is now by the end of April next year.”

Ed McKnight, economist from Opes Partners in Christchurch, said the interesting thing about QV’s data was that it indicated the pace of house price falls had slowed, and he looked forward to buyers returning in greater numbers to the market as summer rolled round.

Wilson said one of the factors that had been depressing prices was high levels of stock for sale.

Public service jobs cuts have made it hard for Wellingtonians to buy homes.

“Generally speaking, those who are in a position to purchase still have a raft of different options to choose from right now, especially within the main centres. So there isn’t so much pressure on prices currently, with more than enough houses for sale to meet the current level of demand,” Wilson said.

However, he said he expected that balance to slowly shift over the coming months.

He said: “First-home buyers remain very much in the ascendancy right now, but we’re already starting to see more investors coming out of the woodwork.

“Values will inevitably tighten again when prospective buyers aren’t so spoilt for choice. That hasn’t happened yet.”

In Wellington, house values dropped by 0.9% in the month of September alone, compared with a national average monthly decline of 0.4%.

In the capital region, Kāpiti Coast and Hutt City both experienced the largest average home value declines in the September quarter at 3.6%. The fall in Upper Hutt was 1.5%, compared with 3.2% in Wellington City, and 2% in Porirua.

Wellington-based QV registered valuer Jack Whiteman said: “Home loan serviceability, job sector uncertainty and the general cost of living are all having an impact on existing homeowners and prospective buyers.”

“Despite having the advantage of choice and competitive pricing, buyers are having to take a cautious approach to the market,” he said.

The only people willing to take on debt in Wellington were people with secure employment.

“This is resulting in a relatively quiet property market,” he said.

In Auckland, only Papakura, to the south of the city, experienced a small amount of home value growth during the quarter.

In dollar terms, Auckland has seen the largest home value falls.

Home values across the entire Auckland region fell by an average of 1.7%, a slower rate of decline that in the three months to the end of August.

The continuing fall in the value of homes remains a long way from bringing average house prices in Auckland down below $1 million.

The average value of a home in Auckland was $1.23m at the end of June, just 4.4% lower than at the start of 2024.

QV identified “modest patches of growth” in Waikato.

After four consecutive months of decline, home values lifted slightly across the wider region by an average of 0.6% during the month of September.

However, Hamilton city saw the average home value decrease by 0.3% to $772,473 in September.

The average home here is now worth 0.5% less than the same time last year and 1.6% less than at the start of 2024, QV said.