Rate cut gamble: Fixing short could cost homeowners thousands

1. Still fixing short?

This week the Reserve Bank will publish its latest home loan figures. These will show which loan terms borrowers chose in April when buying a house, switching banks, or topping up their mortgage. Lately, borrowers have been increasingly fixing for shorter terms – six months and one year – which makes sense considering the next big moves in mortgage rates will be downwards. I expect this week’s figures to show more of the same. Of course, interest cuts might not happen until 2025, and the shorter fixed rates are quite a bit higher than the longer ones.

2. Net migration seems to be past the peak

The latest net migration figures are also due this week. While peak migration has passed, the April figures will likely show a 12-month total of more than 100,000 people, which is about three times the average. In other words, migration is still boosting property demand to a significant degree.

3. Rental growth is slowing too

But the latest rent price figures, covering the month of May, could well show a continued slowdown; good for tenants, less welcome for landlords. Part of the slowdown has probably been less wage growth (limiting how much tenants can actually afford), but the supply of available rental listings has also risen too.

CoreLogic chief economist Kelvin Davidson: "Mortgage rates remain a significant challenge, listing levels are elevated and power has shifted back to buyers." Photo / Peter Meecham

4. House price momentum has petered out

CoreLogic house price figures for May show a 0.2% drop in nationwide values, after a 0.1% dip in April. While the value falls are pretty small, they do show that the market has stalled. Mortgage rates remain a significant challenge, listing levels are elevated and pricing power has shifted back to (credit-approved) buyers. Below the surface, there's a bit of variation: values in Auckland, Wellington, and Tauranga are down, but values were up in Hamilton, Christchurch, and Dunedin.

We’ve always thought 2024 would be the year of the underwhelming upturn, and that remains our view. In fact, if anything, upturn could prove to be too strong a word. For every recent policy change that looks more favourable for the market (e.g. the easing in LVR rules), there’s something working in the other direction, such as the removal of first home grants and the introduction of debt-to-income restrictions. The impending bright-line test changes could also keep listings counts relatively high, if it prompts more cash-strapped investors to sell.

5. Buyers’ market shares steady in May

Meanwhile, CoreLogic buyer data for May showed more of the same, with first-home buyers continuing to hold a 25% share of purchases (still near a record high), movers hovering at around 27%, and mortgaged multiple property owners at 21%. First-home buyers and investors are always in the spotlight, but it’s also worth watching movers. They’ve been moving relatively less than normal over the past few years, so there’s probably some pent-up demand to shift house.