May Economic Outlook
April brings the third consecutive value rise, but could it be the last?
The Cotality Home Value Index rose by 0.1% in April, which was the third monthly increase in a row after a 0.1% lift in March and 0.4% in February. The national median is now $809,101 which is 0.6% higher than January, albeit still -0.8% lower than a year ago (and -16.8% below the peak from late 2021/early 2022).
In a nutshell, despite sales volumes making a sluggish start to the year, property values have managed to edge higher. Of course, the growth has obviously been modest, and not universal either – e.g. Auckland and Wellington both remain patchy. Moreover, there now seems to be a pretty good chance that the mini-upturn will peter out soon or even go into reverse.
Plenty of economic headwinds for property values
In thinking about where we might head next, it’s important to note that housing affordability currently looks a lot better than it has done for several years, with would-be buyers continuing to enjoy plenty of choice amongst the elevated stock of listings that’s currently available on the market. Better affordability should limit any major downside to house prices, but it’s still a buyer’s market – and on the plus side, first home buyers (as well as some ‘Mum and Dad’ investors) continue to capitalise.
Meanwhile, the Iran conflict remains a key concern, with inflation set to rise further, business and consumer confidence plunging, and wider economic indicators also starting to deteriorate. These will surely tend to be restraints for house sales and prices.
Mortgage rates are also heading higher
Needless to say, we’ve also seen upwards pressure on mortgage rates, even before the Reserve Bank has actually made any moves on the official cash rate. It’s an open question about whether the RBNZ pushes through the first OCR rise in July or September, but either way, there’s still scope for mortgage rates to rise further too. This will also be a limiting factor for the housing market.
Unsurprisingly, borrowers have already started to fix longer, with more than 50% of new loans lately being fixed for more than 12 months, up sharply from about 20% over September-November last year. Within that, the two-year rate is currently more popular than it’s been since late 2022/early 2023.
In the current environment, it’s obviously very difficult to make predictions about where interest rates in general might end up, and which individual mortgage loan term might be the best choice. That being said, it’s worth keeping in mind that most commentators currently envisage a reasonably short and sharp OCR tightening cycle, perhaps largely being done/paused early next year, with the rate sitting in the 3-3.5% ‘neutral’ range. Some mortgage rates below 6% should still be possible.
The housing recovery could be delayed again
Overall, economic and interest rate conditions do not look conducive to a lasting rise in property values. Indeed, it would not be a surprise to a pretty sluggish winter for house prices and, after a modest rise to start the year, another flat or slightly downwards result for the 2026 calendar year.
Kelvin Davidson
Cotality NZ Chief Property Economist
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