Monthly Property Insights

There are now much clearer signs that the impact of lower mortgage rates is showing through in property values, with the national median rising by 0.3% in February – the most significant increase for more than a year. Christchurch and Dunedin have remained pretty resilient, Hamilton is also rising, while Auckland and Wellington also ‘joined the club’ in February. But even though the downturn now seems to be over, the next upturn phase may not be particularly strong – especially with listings still elevated and debt to income ratio limits lurking in the background.

In that general environment, here are 10 key points to watch:

1.      Sales volumes to rise from around 80,000 in 2024 to 90,000 in 2025. Lower mortgage rates should push up sales further this year, albeit the rise will be limited to some extent by a subdued economy/labour market and lower net migration.

2.      More deals for all buyer groups. A bigger pie should see all buyer groups purchase more properties, although first home buyers’ % market share may drop a bit (after a couple of record years). Investors and relocating owner-occupiers are showing stronger signs of a return.

3.      Property values to rise by around 5% nationally. Off the back of lower mortgage rates, we should see the emerging upturn in values continue in 2025, but the rise may be a modest 5% or so – still leaving values about 15% below the 2021 peak.

4.      Listings to edge downwards but remain high. At present the stock of listings on the market is at multi-year highs and although that should ease downwards in 2025, I suspect it’ll remain a ‘buyer’s market’ for the foreseeable future.

5.      The end of the fixation on short-fixes? Recently many new and existing borrowers have been going short (or even floating) as they look to ride the wave down for mortgage rates. But with most 2-3 year rates now below 5%, there may be some tricky choices coming up.

6.      Debt to income ratio limits becoming more of a factor – but not a ‘hard stop’. As the internal serviceability test rates at the banks fall, DTIs will become more of a factor for some borrowers. But not everyone will be affected, especially since there’s a ‘generous’ 20% speed limit and that new-builds are exempt.

7.      Rental market to remain in favour of tenants. Rents have flattened out in recent months, and given that net migration has dropped, the supply of available rentals has risen, and that rents themselves are already high in relation to tenants’ incomes, it wouldn’t be a surprise to see rents stay relatively flat (or perhaps rising only modestly) for the foreseeable future.

8.      Builders should have a slightly better year. It’s been tough for many in the construction industry over the past few years, but there are now signs that activity is bottoming out. Lower interest rates should boost new-build demand a bit this year, although a fresh boom seems unlikely.

9.      Global uncertainty might linger, and keep an eye on inflation. There seems a decent likelihood that uncertainty about things like US tariffs and global conflicts (e.g. Ukraine) could be with us for a while yet, and hence some tentative concerns about inflation might linger too. This might not cause our cash rate to rise, but it could potentially limit the falls to some extent.

10.  RBNZ management changes shouldn’t affect the outlook. Adrian Orr’s resignation was certainly a surprise, but he’s only one part (albeit the top person) of a wider committee that sets interest rates, so I don’t anticipate any divergences from the expected downwards path in the near term. LVRs and DTIs could be something to watch under a new Governor, but it’s too early to speculate about any of that.