How fast will house prices rise now mortgage rates are on the slide?

1. So the chances of a boom are ...

The latest CoreLogic house price figures showed the nationwide median property value dropped 0.5% ($31,000) in August to $811,583. That’s the sixth monthly fall in a row, taking the total decline since February’s “mini peak” to 3.7%.

Most parts of the country saw value declines, with Auckland very much feeling the squeeze. The country’s biggest housing market was down 1% month-on-month, and down 6% since the mini-peak. Hamilton values fell 0.8% in August, while the drops in Tauranga, Dunedin and Wellington Region were a bit more modest. Christchurch values, on the other hand, actually edged up by 0.2%.

We’ve seen before what even a small drop in mortgage rates can do to housing market sentiment, so a short-term boost to values from here on shouldn’t be ruled out. But I doubt that a strong or sustained boom is about to start again. After all, houses certainly aren’t exactly cheap (even after recent falls). The abundance of listings means buyers still have the upper hand, although job losses will keep many on the sidelines. And we shouldn’t forget the impact debt-to-income ratio restrictions will have when mortgage rates fall below a certain level.

2. No surprise that everyone’s fixing short

The Reserve Bank’s latest figures showed that 60% of new lending in July was taken out on fixed rates of 12 months or less – a new record high. And that’s despite the shorter term rates still being about 0.4% higher than longer terms. In other words, people are still preferring to fix short, pay a bit more now and ride the interest rate wave down.

CoreLogic chief economist Kelvin Davidson: "A short-term boost to values from here on shouldn't be ruled out." Photo / Peter Meecham

3. Rental market is softening

Stats NZ will publish the July net migration figures on Wednesday, and they’re likely to be down again, as departures increase (of both NZ citizens and non-citizens) and arrivals fall. In turn, we’re also seeing property rents flatten off too. Stats NZ will publish August’s data this Thursday, and a similar result to July’s sluggish figure (annual rise of only 2.5%) wouldn’t be a surprise. After all, in addition to less heat from the demand side of the equation, the supply of available rental listings on the market has also risen, sitting about 25% higher than this time last year, and back to 2021-22 levels. The continued flow of new-builds being completed may well be a factor here, alongside first-home buyers leaving their rentals and moving into their own place.

4. Will inflation ease again

Just quickly to finish for this week, the rent figures are part of Stats NZ’s wider selected price indices release, which covers about 45% of the official CPI. Clearly, the Reserve Bank (and basically everybody!) will be hoping to see a further slowdown in general price pressures in this release.

5. How much are you spending?

At the same time, we’ll also get some up-to-date economic activity indicators this week too, including electronic card sales data and the manufacturing PMI, both for August. It’s hard to see the recent weakness in these indicators suddenly turning around – and if so, the combination of slowing inflation and soft economic data would add to the case for expecting another OCR cut in October.

- Kelvin Davidson is chief economist at property insights firm CoreLogic