Short-Term Fixed Rates Dominate as Housing Market Faces Multi-Speed Conditions

Date Published: 7 June 2024

Key Facts

• Owner-occupiers drew down $4.4 billion in new lending during April, largely on one-year fixed rates.
• Six-month fixed term lending reached a historical high of 16.5% among owner-occupiers.
• House values dipped by 0.2% in May, following a 0.1% fall in April.
• The average property value is now $931,438, up just 1% from a year ago, but still 11% below the 2021 peak.
• Residential investor mortgage lending rose to $1.5 billion in April, with one-year fixed terms accounting for 45% of new lending.
• Total monthly new residential lending was $6 billion in April, up 4.4% from March and 22% from April last year.
• CoreLogic’s House Price Index reports multi-speed conditions in major centres, with declines in Auckland, Wellington, and Tauranga, but gains in Christchurch, Hamilton, and Dunedin.
• Upcoming regulatory changes could potentially put more properties on the market.

Article Summary

The Reserve Bank of New Zealand’s latest figures show a significant portion of new residential lending in April was secured by owner-occupiers, totaling $4.4 billion. A large share of this lending favored short fixed-term rates, especially one-year fixed rates, which accounted for $1.7 billion. Notably, six-month fixed terms hit a historical high, capturing 16.5% of owner-occupier loans. Conversely, long-term fixed rates like three-year or more remained at low levels.

The housing market has experienced stagnation with home value growth declining slightly; a 0.2% dip in May followed a 0.1% drop in April. According to CoreLogic’s House Price Index, the average property value nationally is now approximately $931,438. This is just a marginal 1% increase from the previous year but still around 11% lower than the peak in 2021. The market shows varied trends in different regions, with Auckland, Wellington, and Tauranga experiencing declines while Christchurch, Hamilton, and Dunedin saw some gains.

Residential investor mortgage lending also saw a rise, reaching $1.5 billion in April, with a significant portion on one-year fixed terms. Despite some regulatory changes expected to ease borrowing constraints, mortgage rates are set to remain high, which might limit market momentum. CoreLogic Chief Property Economist, Kelvin Davidson, notes that current conditions, including a high number of property listings, have shifted bargaining power toward buyers, keeping prices subdued.

Additional regulatory moves, such as the potential shortening of the Brightline Test, may see more listings enter the market, potentially easing pressure for some homeowners regarding capital gains tax. Despite recent higher interest rates, New Zealand borrowers have managed relatively well, thanks in part to a strong labor market. Looking forward, any slight decline in job security could further temper housing activity and prices.

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