Squirrel: Economic Pain Will Be Borrowers’ Gain

Another month has rolled around, which means it’s time for another market update. Squirrel explains what’s been happening out in the world of NZ house prices, interest rates, and in the wider economy over the last few weeks.

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What happening with house prices?

There’s been a huge flurry of listing activity in the market over the last six months. It’s not unexpected. All the would-be sellers who’d put their plans on ice the last couple of years (while prices were falling) had to step back into the market at some point, and they’ve done it en masse.

This surplus of supply means two things:

  • Buyers are spoilt for choice
  • Any major recovery in house prices is unlikely (at least for the time being)

The other big factor at play here is immigration. People have been watching the numbers with keen interest, expecting it to create some real upward pressure on house prices.

But a lot of the immigration to date has impacted the rental market far more than the housing market. The time will come when New Zealand’s growing population does start to flow through to house prices, but we’re not there yet.

So, although some commentators were sure we’d see prices bounce back by up to 10% this year – maybe even more – the conditions just aren’t there. We’ll probably get a slight increase in prices this year, but it won’t be to that level.

What’s happening with the economy?

Recent economic data has painted a pretty bleak picture. We’ve had eight consecutive quarters (two years) of declining retail sales in terms of units sold. In the last year alone, retail sales fell by about 6% on a per capita basis, which is a lot by any standard.

The wider economy has stalled in recent months, too, as evidenced by poor GDP numbers. The most recent GDP figures (for the December 2023 quarter) told a sorry story. New Zealand is once again in a technical recession after two consecutive quarters of negative growth – and that trend will likely continue in June’s update, too.

Alongside the strain of higher mortgage rates, council rates, and insurances costs, business owners are facing the added struggle of covering higher salary costs at a time when sales are dropping. As a result, the proportion of business owners that have fallen behind on their mortgage payments is about three times higher than among homeowners on PAYE salaries.

It’s really tough out there for business owners, and that doesn’t bode at all well for the wider economy.

Logo of Squirrel, a mortgage broking and investment firm

How will this impact mortgage borrowers?

Now that the RBNZ has delivered on its promise from late 2022 – when it said it wasn’t afraid to tip us into recession if that’s what it took to get inflation back under control – all that’s left to do is wait.

As evidence of the damage done continues to mount, that will be what prompts the RBNZ to start dropping rates again. The rhetoric coming out of the RBNZ right now is still that it’ll be late 2025 before that happens.

What’s on offer from NZ banks?

Competition is really heating up between the banks in the mortgage space right now, which is why we’ve seen so many headlines about the key players dropping their fixed-term rates in recent weeks.

A lot of that is down to Kiwibank’s growing influence. It tends to price more competitively than the Big Four as a baseline – and it’s reached a size in the market where the big banks can’t afford to ignore that anymore.

The most competitive space at the moment is the popular one-year fixed term, which we’re seeing at anywhere from about 6.89% through to 6.99%.

There are still some great cash backs deals available too, for those in a position to refinance or buying a new property. You can get back anywhere up to about 0.8% of the total loan amount.

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John Bolton founded Squirrel in 2008. He is a former General Manager at ANZ, where he was responsible for the bank’s $60bn of retail lending and deposits. He has 10 years of senior banking experience behind him in financial markets, treasury, finance, and strategy, and is a director of Financial Advice New Zealand, the industry body for financial advisers. Check out Squirrel’s website for how Squirrel helps first home buyers, here.

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